Our Peak Oil, Financial Bubble and
Global Warming
Table of Contents
2008
Stagflation Will Produce Votes for Change – 7/21/2006
Stagflation – 10/26/07
What Is Causing Our
Financial Insecurity? - 11/9/07
Worker Layoffs Are a
Drain of Social Capital - 11/9/07
Welfare for the Well Off - 11/9/07
Is It Your
Money? Can You Spend It Best? -12/7/07
Stagflation: Causes
and Solutions – 2/8/08
Our Stagflation Is
Rapidly Getting Worse - 3/14/08
More
about Stagflation – 3/21/08
Federal Bailout for Fraudulent Financial Institutions – 3/21/08
Deregulation Has
Devastated Our Economy 4/4/08
Goodbye
Manufacturing. Hello Financial
Services. Also Health Services – 5/2/08
Oil: Who’s Got
It? Where Do We Get It? – 5/2/08
High Gas Prices Are Finally Affecting Consumption – 5/2/08
How Will We Spend Our Stimulus Payment? – 5/2/08
The Party’s Over – 5/2/08
Hello $200 Oil. Goodbye Economy. – 5/16/08
Are Corporations
People? – 5/30/08
Bye Bye
Manufacturing. Now Bye Bye Hi
Technology. – 6/6/08
Whither Our
Economy? Yuk! – 6/6/08
Growing - and Sharing - the
Economic Pie –
6/6/08
Reducing Our Military
Spending – 6/6/08
Global Warming Feeds
Itself – 6/20/08
Oil Drilling in
Bye Bye Oil. Bye Bye Lifestyle – 6/27/08
Bye Bye Water. Bye Bye Fertilizer. Bye Bye Food – 6/27/08
Three
Crises. Wasted Years. – 6/27/08
Is Speculation
Affecting Oil Prices? – 6/27/08
Hello Debt. Bye Bye Credit. – 7/4/08
Global Warming and
Barack Obama’s Plan – 7/11/08
Commodity Prices:
Market or Speculation Produced? – 7/11/08
Oil Prices per Barrel
– 7/11/08
Four Dollar Gas Isn’t
All Bad – 7/11/08
Housing Loan
Regulators Are Missing in Action – 7/18/08
Obama’s Approach to
Creating a Fair Economy – 7/18/08
Naomi Klein: Shock
Crony Capitalism – 8/1/2008
To
Revive our Economy, Investment or Consumption* – 8/1/2008
Free Choice Act ->
Unionization -> Social Benefits – 8/1/2008
How Can We Resist and
Turn Back Neo-Conservatism? – 8/8/2008
Corporations: Three
Strikes and You’re Out – 8/8/2008
Do We Need More or
Less Credit? – 8/8/2008
Economics Without
Money – 8/15/2008
Our Debt Crisis* – 8/22/2008
What’s with Recent Oil Price
Declines? – 8/22/2008
Economic Bubbles Are
Fueled by Institutional Greed* – 9/5/2008
Replacing Useless
Work with Useful Work* – 9/5/2008
Fannie May, Freddie
Mac Are Largest Bailouts Ever – 9/12/2008
Our Economy Isn’t Fundamentally Sound – 9/19/2008
No End In Sight of Failed Financial Companies – 9/19/2008
Restoring Credit Is Immediately Necessary – 9/26/2008
Our Most Important
Task Is Creating Needed Jobs* – 9/26/2008
Stopping Fraud* – 9/26/2008
Restricting
Speculation* – 9/26/2008
Producing and
Ameliorating Employment Shifts* – 9/26/2008
Our Financial
System’s Problems and Solutions – 9/26/2008
Our Golden Era. Wrecked by Conservatives* – 10/3/2008
How Should We Restore
Credit? A Better Approach* – 10/3/2008
Will You Accept a Financial
Loss for a Better Future? – 10/3/2008
The Bailout: The Good
and the Bad – 10/10/2008
A Roosevelt Solution to Our Financial Crisis* –
10/10/2008
Strengthening Our
Good Banks – 10/10/2008
Ouch! Reducing Our Speculative Gains Is Painful – 10/10/2008
Personal Finances:
Then and Now – 10/10/2008
Small Is Beautiful – 10/17/2008
Two Opposing Approaches to Our Economic Crisis – 10/17/2008
JOBS! JOBS! JOBS – 10/17/2008
Avoid Foreclosures
and Produce Affordable Housing –
10/17/2008
Another Stimulus
Package? – 10/24/2008
Should We Eliminate
401(k) Retirement Plans? – 10/24/2008
What Happened to Oil
Prices? – 10/31/2008
Bailout Money Is Being Misused – 10/31/2008
Do We Need
Micro-Credit in Our
Correcting
Our Housing Market
– 11/7/2008
Bretton Woods II – 11/14/2008
Chinese Stimulus Package – 11/14/2008
Reclaiming
Our American Dream – 11/21/2008
Bailing
Out Bad Financial Companies – 11/21/2008
Substitute Affordable
Housing for Foreclosure – 11/21/2008
Is Immediate Congressional Action
Required? – 11/28/2008
Let’s Not Allow Any
Company to Be Too Big to Fail – 11/28/2008
How Can We Measure Our Progress
toward Needed Change? – 12/5/2009
What Is Infrastructure? – 12/5/2009
Appropriate Regulation: Businesses,
Industries, Markets – 12/5/2009
Our Borrow, Consume & Speculate
Mindset Persists – 12/12/2009
Two Questions: Restoring Credit and Defaulting
Mortgages – 12/12/2009
Two Ways to Stimulate Our Economy – 12/19/2009
Some Industries Lose Jobs. Others Gain Jobs. – 12/19/2009
Our Automobile Industry Should Lose
Jobs – 12/19/2009
Housing Values Need to Decline More. – 12/19/2009
Barack Obama’s Jobs Stimulus Recovery
Package – 12/26/2009
Is Enough
Credit Available? – 12/26/2009
Stopping Corporate Abuse – 1/2/2009
Lessons from Bernard
Madoff’s Scam – 1/2/2009
Lee Iacocca:
Where Have All the Leaders Gone? –
1/2/2009
The
Falling Price of Oil: A Mixed Blessing
– 1/2/2009
Returning to
Earn, Conserve and Invest – 1/9/2009
We’ve Bailed Out Companies for 40
Years – 1/9/2009
New Economic Roles for Government – 1/9/2009
Fixing Our Economy Requires Fixing
World Economy – 1/9/2009
Some Stimuli Stimulate Much More than
Others – 1/9/2009
Why No CCC/WPA Type Federal Employment Programs? 1/9/2009
Personal Bankruptcies Are Increasing – 1/9/2009
Economic
Recovery Will Increase Our Dollar’s Value – 1/16/2009
Good and Bad
Infrastructure Projects –
1/23/2009
Our Major Regulation Battles – 1/30/2009
Good and Bad Bailouts – 1/30/2009
Understanding Bailout Alternatives – 2/6/2009
Let Community Banks Provide
Appropriate Credit. – 2/6/2009
Which Jobs Are Being Lost? – 2/6/2009
Enabling Our Young to Join Our Middle
Class? – 2/6/2009
Current Job Losses Are Greater than in
Recent Recessions – 2/13/2009
Understanding
Earnings for Dummies– 2/13/2009
Understanding Bailouts for Dummies–
2/13/2009
Understanding Economic Stimulus-Investment
Package for Dummies– 2/13/2009
Commercial Media Enable Consume and
Speculate – 2/13/2009
Lots of Blame for Our Financial
Crisis – 2/20/2009
How Much Credit and Consumption Do We
Need? – 2/20/2009
David Korten Calls for Changing Our
Economy to Reduce Consumption –
2/20/2009
Our Economic Transition Has Only Gone
Halfway – 2/27/2009
Evaluating the Financial Condition of
Big Banks – 2/27/2009
Dean Baker: Allow Foreclosures, but
Let Resident’s Stay as Tenants. –
2/27/2009
Savings which Declined during Bubble,
Have Since Increased. – 2/27/2009
Declining Production and Lower oil
prices harm
They Just Don’t Get
It. We Need Less Borrowing. Less Consumption. - 3/6/2009
James Galbraith: More Credit Won’t
Help If No Borrowers Appear – 3/6/2009
Only Half of Projected Foreclosures
Have Begun – 3/6/2009
Comparing Our Present Recession with
the 1930s Depression – 3/13/2009
President Bush Lowered their Taxes,
then their Wealth – 3/13/2009
We Must Stop Abusive Business
Behavior – 3/13/2009
AIG Bailout for Dummies – 3/27/2009
Federal Deficits and Debt for Dummies – 3/27/2009
Eliminate Privacy for Corporations –3/27/2009
Thomas Friedman Describes Our Bubble
Economy – 3/27/2009
Is Our New Frugality Only Temporary? – 3/27/2009
Robert Kuttner: Essential Policies to
Reform Our Economy – 4/3/2009
Building Our New Economy – 4/3/2009
Providing Adequate Pensions – 4/3/2009
Mark to Market for Dummies – 4/10/2009
We Need to Clean the World’s Water – 4/10/2009
From Our Old Economy
to Our New Economy – 4/17/2009
We Need to Replace Our Failed
Retirement Investment System – 4/10/2009
Creating a Sustainable Global Economy 4/24/2009
Non-carbon Based Energy Is Necessary,
Even Though Oil Prices Will Increase
– 4/24/2009
Economic Recovery Issues for Dummies – 4/24/2009
Don’t Personally Bailout Banks – 5/1/2009
Five Energy-Climate Policies – 5/1/2009
After Economic Recovery, the Good
Life – 5/8/2009
Understanding Stress Tests – 5/15/2009
Can We Only Bail Out the Good Guys? – 5/15/2009
Tax the Rich to Increase Revenue by
$450 Billion/Year – 5/15/2009
Dollar Value Decreasing. Oil Prices Increasing. – 5/15/2009
United States and European
Unemployment Rates – 5/22/2009
Three Types of Economic Stimulus: Good, Bad, Ugly –5/29/2009
The Rise of Crony Capitalism – 5/29/2009
No Inflation in Sight – 5/29/2009
Workplace Flexibility Wanted – 5/29/2009
Several Needed Lawsuits – 6/5/2009
Good, Bad and Ugly Countries – 6/5/2009
Michael Moore’s Plan for General
Motors – 6/5/2009
Our New Thriftiness – 6/5/2009
2008 Stagflation Will Produce
Votes for Change – 7/21/2006
I believe that conditions will change markedly
by 2008, especially our economy. Our
weak recovery is reaching its maximum.
Oil prices are driving inflation, forcing the Federal Reserve to raise
interest rates, which deflate our housing bubble, reduce home equity
refinancing and loans and thus reduce demand.
The result is stagflation in the direction of the economy under
President Carter in the late 1970s, which ended 30 years of enormous well
distributed economic growth.
Our enormous federal and trade deficits are
weakening our dollar which makes foreign imports more expensive and allows our
businesses to also increase their prices, adding to the inflation. We are also vulnerable to foreigners who may
tire of holding our debts, such that the government must raise interest rates
to attract borrowers, causing more depression.
Ain’t economics fun? It sure gets
complicated in a hurry.
More than disgust with deception, incompetence
and corruption, anxiety about a poor
economy will motivate voters to vote for a change. The former are corrosive, but the latter have
immediate direct impacts. An added
factor is two more years of the
If Democrats take control of our government in
2008 without the Trojan horse of southern conservatives in their midst, we may
see sweeping initiation of liberal measures.
Improving our environment, energy sourcing, consumer protection, health
care, education, jobs, support for labor unions, minimum wage, retirement and
much else may occur. This will occur
much easier if our Democrats are truly liberal without being in thrall to
petroleum, pharmaceutical, health insurers, agro-business, media and other
powerful industries. Key reforms will be
procedural: elections, lobbying, legislative rules and others to which voters
give little attention.
Stagflation –
10/26/07
As you may have noticed, I enjoy making predictions. Even though it is risky. Sometimes I’m wrong. Generally because I am too optimistic that
events will turn out the way I want.
Maybe making predictions is a way of showing off. Or maybe it provides a service by stimulating
thought, although that might be done by raising questions instead of making
predictions.
Whatever.
Some months ago, I predicted that we are likely to experience
stagflation before the 2008 election, even though Business Week and others were
predicting that the housing sub-prime mortgage meltdown and higher gas prices
wouldn’t have a major impact on the economy.
Now it appears increasingly that I have been right. Oil prices are headed toward $90 a barrel. Sub-prime mortgages are creating major
problems for both borrowers and lenders.
The dollar is depreciating relative to other currencies, making oil
cheaper abroad.
To assist borrowers and lenders, the Federal
Reserve is likely to cut interest rates further. This may help them, but not stimulate much
economic activity. As housing prices are
stagnant or declining and lenders are more cautious, house owners can’t easily
refinance to have more spending money.
People won’t borrow to invest, if consumers don’t buy, due to having
less discretionary income after paying for increased gas, food and health
costs. Food costs are increasing as corn
is directed toward ethanol for fuel.
Health costs are increasing as insurers have captive audiences and employers
pay less of the costs. Lower interest
rates will also lower the price of the dollar, making imports expensive, but
often not deterring them because our products are not competitive.
I have mixed feelings about the coming
stagflation. I dislike seeing Americans
suffer from stagflation. But the
solution is regulating financial transactions to prevent bubbles such as our
housing lending bubble, finding other sources of energy than corn, investing in
American physical and social infrastructure, and other measures. These will not occur until problems become
apparent and until Democrats assume power.
Stagflation will contribute to a big Democratic win in 2008.
What Is Causing Our Financial
Insecurity? - 11/9/07
During the last 30 years, deregulation has
occurred, our financial economy has become more speculative and corrupt, public,
labor union, and employer safety nets have been dismantled and our lives have
become more risky. Robert Reich and
Robert Kuttner (both well known authors about economic change and leaders of
the American Prospect) discuss this. They
largely agree. But they disagree about
why this has occurred. Robert Reich
believes that technological change has caused increased competition, to the
detriment of safety nets. Robert Kuttner
believes that market fundamentalism and deregulation are the causes, enabling
competition to run amok.
Why is this important. Because it would be almost impossible to
reverse technological change. But we can
reverse our economic ideology and create government programs and regulation
which again share our risks and enable us to cooperate to prevent or mitigate
them. I encourage you to read their
argument carefully to understand what we must do to restore our American
Dream. Dave Thomas
Worker Layoffs Are a Drain of Social Capital - 11/9/07
We have recommended various books which describe the lives of those
who work several minimum wage jobs. Also
books which describe our overworked and overspent middle class. Louis Uchitelle’s 2006
book, The Disposable American, Layoffs
and Their Consequence describes what happens when middle class Americans
get laid off. Social capital is lost and
most laid off workers suffer an enormous malaise, harming both them and their
families. This is a major problem, yet
it has generally fallen below the radar of Liberal as well as Conservative
politicians. Instead of trying to create
increased job stability, most attention is given to assisting the laid off person
to obtain training for another job. This
clearly has not worked.
Welfare for the Well Off - 11/9/07
The other recommended book this week, The
Conservative Nanny State by Dean Baker, shows how the wealthy who decry welfare
for our middle and poorer classes, eagerly create and consume government
welfare assistance for themselves. They
restrict competition at the top, stimulate high executive pay, protect their
products from competition, allow them bankruptcy not allowed the rest of us,
protect them from lawsuits, enable them to escape taxation and more. Most of us are playing against a stacked
deck.
Is It Your Money? Can You Spend
It Best? -12/7/07
Our
President George Bush favors tax cuts, especially for our wealthy. He often tells audience, “It’s your money. You can spend it best. But he is often wrong on both counts.
If
you use other people’s capital in your enterprise, you must pay them. The money you give them is theirs, not
yours. If you use other people’s labor,
you must pay them. The money you give
them is theirs, not yours. If you use
our social heritage, you should pay to sustain it.
Our
social heritage consists of both physical infrastructure (transportation,
communications, and other facilities) and social infrastructure (our legal,
education, family and other systems).
Without capital, labor and our social heritage, your enterprise could
not prosper as it does. Your share of
the money to sustain our heritage belongs to the public, not to you. So not all of the money you receive is
yours. Only what’s left after you pay
for your factors of production is yours.
Progressive personal and corporate income taxes and inheritance taxes
direct the money wealthy people and enterprises owe for the benefits they
receive from our social heritage.
Conservatives
deceptively claim that inheritance taxes tax wealth twice. But much inherited wealth consists of stocks
which have appreciated without being taxed.
Capital gains taxes are not levied against the stocks when they are
inherited. Instead they are
forgiven. Without inheritance taxes,
much inherited wealth would never be taxed.
Can
you spend your money better than the government? Would
Stagflation: Causes
and Solutions – 2/8/08
Stagflation is a
combination of increased inflation, reduced demand and increased
unemployment. We might think that this
would be impossible. When unemployment
increases, decreasing demand for consumer goods should cause deflation of
prices of consumer goods. Similarly when
unemployment decreases, prices should increase in response to higher demand.
Trade with Foreign Countries
But stagflation occurred
during the Carter administration and is occurring now. In both cases, stagflation is the result of
our trade with foreign countries. We
purchase more petroleum from abroad because our consumption in increasing while
our domestic supply is decreasing. We
purchase more manufactured goods from abroad because we have reduced tariffs
which used to protect our domestic producers from foreign producers who pay
lower wages and pay less environmental and other social costs. We are also outsourcing service jobs to
foreign countries.
Causes of Inflation.
When petroleum prices
increase as occurred in the 1970s and is occurring now, increased energy and
transportation costs cause increased prices of other goods. As we attempt to substitute ethanol made from
grain for gasoline, the prices of our food which include or depend on grain
increase.
Our inadequate maintenance
and improvement of our physical infrastructure causes increased transportation
and communication inefficiencies and costs.
The poor quality education that many of our students receive produces
labor inefficiencies and costs. Too
little competition among colleges and universities increases costs. Receiving little student assistance from our
government, many high school graduates can’t afford to attend college. Less educated labor imposes costs on
producers.
Our unique health care
system which depends upon private insurance coverage is producing
out-of-control cost increases, inefficiencies and inadequate care for many of
us. Sick people increase both health
care and labor costs.
Our producers also face
job (FICA) taxes and health insurance costs not shared by their foreign
competitors. This increases their
prices, reduces their competitiveness and reduces the numbers of workers they
employ.
The Deregulation which began
during the Carter administration has introduced huge inefficiencies into our
economy. In many industries, competition
has declined, resulting in price increases.
Savings and loan, dot.com and housing bubbles have occurred, producing
much inefficient investment. Corruption
has hugely increased, resulting in negative effects upon our environment, our
quality of consumer goods, the treatment of our workers and our
shareholders. One major form of
deregulation has been the deterioration of labor rights to unionize and
bargain. Another cost of inadequate
regulation has been corporate rigging of the books to deceive investors,
resulting in bankruptcies which impose enormous costs upon investors and
employees.
The contracting out of
government services without competitive bidders to campaign contributors by our
Bush administration has produced huge inefficiencies, including over-billing,
poor quality services and mistreatment of labor. Government payments for services we don’t
receive is a form of inflation.
So is earmarked pork (by
most members of both political parties) which forces our government to buy
unneeded services from campaign contributors.
Our Occupation of Iraq,
military spending not oriented to dangers we face, and many internal security
measures are spending enormous sums, creating additional long term costs and
diverting workers from productive domestic jobs to military service
abroad. As our government borrows from
aboard, interest payments are a further drain on our economy, increasing our
costs and reducing our demand for domestic goods and service.
Causes of Unemployment
Our increased purchase of
foreign goods and services is draining money from our economy, resulting in
reduced domestic demand and employment.
As people consume oil and
other goods dependent upon oil, they have less money to spend for other
goods. Money is drained off to oil
producing countries abroad Demand for
domestic consumer goods and services declines.
Unemployment increases.
We are also experiencing
increased competition from foreign countries in East and South Asia,
Wages (in real terms) for
most Americans have stagnated or declined during the last 30 years. Even with more family members seeking work
and borrowing heavily through credit cards and home equity, family incomes have
stagnated. A lesser proportion of us
have middle incomes, as some are receiving higher incomes and many are
receiving lower incomes. This has been
aggravated by tax decreases for our wealthy and reduced support for our poor. The higher a person’s income and wealth, the
less the proportion they spend upon domestic consumer goods and services. Our increasing financial inequality is
reducing our demand and increasing our unemployment. For more. For
more.
Contrary to Conservative
claims, the Bush income and estate tax cuts oriented heavily toward our wealthy
have harmed our economy, producing the slowest economic growth in decades. The proposed tax stimulus package will
similarly provide inadequate stimulus. For
more.
To Stop Stagflation
The above examination of
factors producing stagflation suggests these remedies:
·
Prioritize our
internal security measures based upon likelihood and magnitude of threats.
·
Restrict our
national guard to internal security duties, except for congressionally declared
foreign emergencies.
·
Support
creation of an international justice and peace capability, so we aren’t tempted
to police the world.
·
Downsize our
military to orient only to probable military challenges.
·
Bring our
troops home from
·
Reduce
consumption of foreign oil through conservation, recycling and alternative
energies.
·
Invest in
producing alternative energies
·
Invest in
producing vehicles and other machines which conserve energy and use sustainable
energy.
·
Use grains to
provide food instead of fuel.
·
Protect our
environment to deduce public costs.
·
Invest to
maintain and enhance our physical infrastructure.
·
Invest to
provide quality care and education to every child and person from birth
throughout their life.
·
Provide sufficient
educational assistance to qualified students.
·
Invest to
provide quality cost controlled health care to all.
·
Allow our
government to bargain with health care providers.
·
Substitute
public health care insurance for private insurance.
·
Substitute
consumption taxes for job (FICA) taxes.
·
Restore and
enhance worker rights, including especially the rights to unionize and bargain.
·
Create a fair
progressive income tax which doesn’t contribute to unwarranted financial
inequality.
·
Create
measures to provide adequate incomes to workers and disabled people.
·
Regulate
industries and businesses to restore appropriate competition; reduce
corruption; prevent bubbles; and protect our employees, investors, suppliers,
consumers and environment.
·
Eliminate
privatization of government work, with no-bid contracts to campaign
contributors.
·
Eliminate both
Republican and Democratic earmarked pork contracts to campaign contributors.
·
Regulate
foreign trade to require competitors to improve their labor, consumer and
environmental standards.
·
Ease
immigration of needed students and workers to our county.
The government can be a
problem through doing too much or too little.
It is a necessary solution to many of our challenges.
Our Stagflation Is Rapidly Getting Worse - 3/14/08
Causes
Since
a comprehensive analysis of the causes of stagflation and its solutions has
been presented here previously and posted on
our website, this will only briefly describe what is happening now. Our stagflation results from three factors,
each of which has been made worse by the Bush Administration’s economic
policies.
1.
Our dependence
upon importing increasingly expensive oil is increasing our cost of living and
draining money to oil producing countries, leaving less money for spending
here. For seven years, our Bush
administration has done nothing to make us use alternative energy sources or
use our energy more efficiently.
2.
President
Bush’s tax cuts for those with high incomes, left them with more money which
they did not spend domestically, thus reducing the demand for
3.
Deregulation
which has continued and increased since the Carter Administrations, has left us
vulnerable to various bubbles. Our current
collapse of our housing market and lending institutions resulted from
inadequate regulation of lending practices and deceptive packaging and resale
of faulty loans.
Inadequate Solutions and Alternatives
Composed
primarily of bankers, our Federal Reserve System is lowering interest rates and
putting money into our banking system.
These are helping our banks.
These do not stimulate borrowing by consumers who are already heavily in
debt. They do not stimulate consumer
spending and job creation,
Various
measures are being proposed and passed to assist home loan borrowers, but these
are not targeting those who were most defrauded. Imagine instead that we insist that lenders
of faulty loans should be forced to adjust them (both the amounts and the interest
rates) so that borrowers can repay them.
In addition, money should be provided to local governments to work with
voluntary agencies to purchase foreclosed houses to make them available as
affordable housing (either for sale or for rent).
A
stimulus package has been passed which primarily gives tax cuts to people who
will only spend a small part to stimulate the economy. Better alternatives would give money to those
who deserve it and would immediately spend it: increasing our Earned Income Tax
Credit, increasing our Unemployment Insurance Payments, and granting a tax
credit to workers who pay no more than $1000 in job (FICA) taxes.
Taking
slightly longer perhaps would be the provision of funds to state and local
governments for spending on our physical and social infrastructure. And for spending on production of alternative
energies and reduction gases which contribute to global warming.
For the Longer Run
Even
if we immediately begin responding appropriately, our stagflation would worsen
and continue. There is little that can
be done in the short run to reduce oil imports.
For more. Conservation measures should be quickly
adopted. Subsidies should be provided to
stimulation production of alternative energies.
But these would take some time to affect our inflation of oil prices.
We
need to reverse the Bush tax cuts, but this won’t occur for at least a
year. And we need to regulate our
various financial markets to prevent future fraud and bubbles. Our worsening stagflation will add to the
Democratic electoral victories this fall.
But it will present a major challenge to the incoming administration. A key indicator of success, will be whether
the new administration adopts the appropriate measures described above. Or whether it simply continues to steer money
to those with middle and upper incomes and to producers.
More about Stagflation
– 3/21/08
We published a concise analysis of our stagflation, its causes and
solutions and posted it on our website. It is worsening, and none of the Federal
actions are likely to make much difference to our average American. For a more technical analysis, see Business
Week. For
more about the effects of deregulation.
For more about our falling
dollar compared to other currencies.
For more about
the job cost of our military and war in Iraq. The war costs everyone,
but oil producers and private military services contractors. We shopped ‘til we
dropped. And Bush
appears carefree.
Note that
Federal Bailout for Fraudulent Financial Institutions –
3/21/08
Federal
Reserve loans predatory lenders $200 million, guaranteeing their mortgage
backed junk bonds. We taxpayers may
end up paying investors who bought fraudulent mortgage loans. Notice that 2 million mortgage loans are
expected to default. If the average loan
is $300,000, the total would be $600 billion.
Hundreds of billions of bad debt is still mingled with other debt, and
thus hidden until the actual defaults occur.
What happened to moral hazard?
Conservatives typically claimed that granting assistance to needy
people, provided a moral hazard which tempted them to avoid taking
responsibility for improving their lives.
But we hear little these days about moral hazard, when the Federal
Reserve bails out fraudulent financial institutions. Corporations hate government when it regulates,
but they
love it when it provides them welfare.
The Federal Reserve argues that letting Bear Sterns and similar
fraudulent institutions fail would eliminate credit necessary to our
economy. But how about making extra
funds available to those banking institutions which avoided the fraudulent
selling and repackaging of household mortgages?
Let the ones like Bear Sterns fail.
Can’t we ensure the availability of credit, without rewarding fraudulent
institutions? For more. For
more.
Deregulation Has Devastated Our Economy 4/4/08
Powerful corporations were formed after the civil
war, which immediately began to use their power to give higher priority to
their profits than to serving the public.
Under presidents Theodore Roosevelt and Franklin Roosevelt, regulations
were passed to protect consumers, workers, suppliers and investors from
corporate abuses.
Appropriate competition produces fairness and
efficient allocation of resources and production to meet consumer demands. But too little competition gives producers
too much power, while too much competition gives producers too little
power. Depending upon industry
circumstances, regulations should be implemented to produce appropriate
competition. This requires that the
general public instead of powerful corporations control the decisions
concerning regulation.
President Ronald Reagan expressed a conservative
viewpoint that instead of being abusers, corporations were victims of abuse by
our government which regulated them, when he said’ “Government is not the
solution. It is the problem.” Beginning with President Carter’s administration,
we have removed many regulations of companies, industries and markets. In many cases, the deregulation has allowed
abuses to occur.
Is our telephone industry more innovative and
efficient now than it would be if we had not dismantled our regulated Bell
Telephone monopoly? Has our airline
industry functioned better since our former regulations were removed? While these deregulations to allow more
competition may be mixed blessings, much more damage has resulted from our
deregulation of our financial industries.
For
more. For more.
The recent proposals to combine financial regulatory
agencies just rearrange existing responsibilities without extending regulation
to hedge funds and other entities which are now unregulated and have been
responsible for much of our current financial collapse. For more. For
more.
Goodbye
Manufacturing. Hello Financial
Services. Also Health Services – 5/2/08
Since the 1970’s, manufacturing production has
decreased from 25% of a growing GNP to 12%.
While financial services has increased from 12% to 20%. Health care services has also increased to
about 14%, including many paper pushers.
Wouldn’t it be wonderful if we could reduce the number of people in
financial and health care services, spending the money instead on training caregivers
and paying them better.
Why have financial services grown so much? Through tax cuts, government debt has
grown. 1983 tax changes have encouraged
corporations to replace equity financing with borrowing, so their debt has
grown. Easier credit (both credit cards
and household second mortgages) and stagnant incomes have stimulated an
increase of household debt. More
employees have be able to make own decisions concerning their retirement
investments. Financial deregulation has
stimulated the growth of many new types of financial services. More financial employees are needed to manage
this borrowing, lending and investing.
Due to their influence on both Republican and
Democratic legislators, it may be virtually impossible to regulate financial
services. Without regulation, bubbles,
their collapse and government bailouts will continue. Regulation will need to begin with our
Federal Reserve, which is controlled by bankers and puts their interests before
the interests of our workers and consumers.
Instead of reducing the proportion of our workers, engaged in financial
(and health care) services, they may increase until our whole financial system
collapses. For more.
Oil:
Who’s Got It? Where Do We Get It? – 5/2/08
Who’s Got It? Where
Do We Get It?
U.A.E 7%
Others 10% Source and more.
High Gas Prices Are Finally Affecting
Consumption – 5/2/08
People love to drive, especially
Americans. For many, driving alone seems
far better than any alternatives. As
parking, toll and gasoline prices have increased, we haven’t changed our driving
habits much. But recent and expected
future gasoline prices have begun to affect our behavior. We are driving less, and more of us are
gradually switching to less expensive forms of transportation. We are reducing our purchases of gas guzzling
cars and light trucks, to the detriment of American sales of American car
companies.
With less money left over after purchasing
gasoline, and fewer ways to borrow money, we are beginning to cut our other
consumption, buying cheaper products or doing without. For more. For
more. For
more. Coupled with rising prices for
food dependent upon grains, including meat and dairy products, we are becoming
especially cautious in our food purchases.
Poor people here and abroad are suffering hunger, with more using food
banks. Some are selling their stuff. Retail stores which offer high priced clothes
and other products are experiencing declining sales. Starbucks’
sales are down. Money flowing to oil
producing companies abroad are increasing our debt, while declining retail
sales are harming our economy.
Many of our problems: urban sprawl,
commuting, traffic congestion and pollution result from the lack of affordable
housing near jobs. Higher gasoline
prices will make housing near jobs even more expensive, while reducing the
prices of houses far away. Commuters
will find it more difficult to sell their remote homes and more expensive to
buy ones closer to metropolitan jobs.
On April 24, 2008, our Puget
Sound Regional Council’s (PSRC's) General Assembly voted overwhelmingly to
adopt VISION 2040. VISION 2040 is a regional strategy to
accommodate the additional 1.7 million people and 1.2 million new jobs expected
to be in the region by the year 2040. A
major component is the attempt to concentrate homes near urban centers instead
of enabling urban sprawl. Between
increasing gasoline prices and government action, we may be able to reduce
urban sprawl.
Not sufficiently emphasized is that a key component will be the availability of affordable housing near jobs. Rising gas prices may actually make urban houses less affordable, as more people attempt to purchase them. But we could take advantage of our current housing foreclosures, to bail owners out in return for restricting their resale and rental price, thus making the house affordable to future moderate and lower income owners as well as the present owner.
How Will We Spend Our
Stimulus Payment? – 5/2/08
Most of
us are receiving stimulus payments ranging up to $1200. These were supposedly enacted to stimulate
our economy, through encouraging our spending on American made products and
services. But all the financial advisors
are recommending that we use them to pay off our debts, or increase our
savings. Many of us will do this. Others will use them to maintaining our
levels of gasoline and food consumption in the face of higher prices. Thus benefiting foreign oil suppliers, or our
already profitable agro-industry. Higher
gasoline and food prices will be sustained, the latter increasing poverty,
malnutrition and starvation. For more. Few of our
expenditures will be for other products and services. Little stimulus will result.
The Party’s Over – 5/2/08
Our Bush
administration and colleagues have thrown quite a party. But now it’s over. Leaving a horrendous mess. As Damon Silvers says in the current issue of
the American Prospect,
“So the next president will
come into office facing a multitude of challenges -- a housing- and
credit-market driven recession, rising energy prices, global warming, a current
account deficit that is spiraling out of control, the war in Iraq, a collapsing
dollar, a rising China and India, long-term crises in health care and
retirement provision. Treating each of these crises individually while
continuing our low-wage, high-debt economic strategy will certainly result in
failure. The challenge is to understand that there is a choice, a different
direction we can and must go in. And then, to go there.”
When Barack Obama takes office in January, 2009, our hopes
and expectations will be high. But they
were high when our Democrats assumed control of our congress in 2007. And we have been disappointed. Will we be disappointed again in 2009? How fast will things change? Especially the things we most care
about. How patient will we be? How can we respond to our impatience
constructively to further the changes we want?
What should be our priorities? Like a log jam, some logs hold the key to
releasing lots of others. But these logs
may be the most difficult to move and if they move, may not seem very important
compared to others we care more about.
Curbing the influence of campaign contributors and their lobbyists are
key logs. But this will be difficult,
especially when Americans are more concerned with peace and prosperity
issues. This is where leadership comes
in.
The Obama administration must certainly win some quick
victories by dealing with the low hanging fruit – things that can be changed by
executive order. But it must also inform
and mobilize people and our congress to deal with basic issues.
Hello $200 Oil. Goodbye Economy. – 5/16/08
Some
are now predicting that the cost
of a barrel of oil may soon reach $200, with gasoline costing $5-10. Since most of our oil is imported, this will
produce an enormous drain of money from our economy to oil producing countries
abroad. The cost of gasoline will
produce inflation while the drain of money will cause recession, what we call
‘stagflation’. For more. And if you think oil is expensive, imagine
its price will be if we bomb
Our
Federal Reserve is not capable of dealing simultaneously with inflation and
depression. Tightening money will fight
inflation, but increase recession.
Loosening money will do the opposite.
Additional
impacts of the high cost of gasoline will include the increasing the price of
housing close to jobs while reducing the price of housing which requires
commuting. This will negatively affect
both urban and suburban dwellers, except for those who already own urban
homes. It will increase the demand for
mass transit, which is now woefully inadequate.
It will wreck our automobile industries, which are dependent upon
selling gas guzzlers.
The
only answer is to become less dependent upon gasoline. But this will take time. In the meantime, we will suffer enormous
dislocations, larger than we are now suffering or suffered during the late
1970’s when Jimmy Carter was president.
Aggravated by a growing foreign debt, which foreign countries will not
continue to service without raises in interest rates (which further slow our
economy), our depression could approach that of the 1930’s.
John
McCain and the Republicans offer nothing to ameliorate stagflation. They instead offer obstacles to reducing
it. We need to elect Democrats who must
place the highest priority upon reducing our oil consumption through
conservation, development of alternative sources of energy and of
transportation and other technologies which use these alternative
energies. These measures are also
necessary to reduce the global warming which is increasingly harming our economy
and environment. To the extent that we
don’t reduce our dependence upon imported oil, we will experience economic
dislocations which will reduce our ability to deal with most of our other
challenges. Our highest priority must be reducing our oil consumption. For
more. For
more. Dave Thomas
Are
Corporations People? – 5/30/08
Before 1886, Corporations were considered the artificial
creations of their owners, authorized by state legislatures. The were limited in purpose and to activities
which served this limited purpose. They
could not make charitable or political contributions. They were limited in duration and misbehavior
could result cancellation of their charters.
Their records were open to the state attorney general and
legislature. Owners had legal
responsibility for corporate acts.
Employees could be held criminally liable for breaking the law, without
protection for acting on behalf of their corporate employer.
Representing a railroad in i854, Abraham Lincoln claimed
that a corporation was a person. The
Illinois Supreme Court disagreed. In
1886, the formal ruling in the
Corporations are very different from persons. They can survive much longer than
people. They can amass much more wealth
and power. They can easily focus on
their own self interest, often the making or large profits, instead of having
the range of moral sensitivities of people.
They have many more large impacts on others (including their employees,
customers, suppliers, communities and environment) than do people. More than people, they can impose burdens on
people and escape the consequences.
Corporations can bring enormous resources to court cases, to reduce and
delay payments, even when they have been found responsible.
Through political involvement involving campaign
contributions and lobbyists, they can and commonly do influence government
policy to their own benefit at the expense of the public. Through advertising, they can and do promote
unhealthy habits among viewers and listeners.
It does not have to be this way. It is very different in the European
Union. Jack Welch (at the time, head of
General Electric) and other executives have been astonished to find that the
officials in
This is not an issue which is discussed during political
elections, except possibly by such minor party candidates as Ralph Nader. It is unlikely to be explicitly dealt with by
a new Democratic administration. Any
restraint of corporate legal power is likely to be a long time coming. The stakes are enormous. Practically on death ground, at least with
respect to their power, corporations will fight to maintain their rights more
vigorously than any other fight they will make.
For more information, see:
Thom Hartman, 2002, Unequal Protection, The Rise of Corporate
Dominance and the Theft of Human Rights
Marjorie Kelly, 2001, The Divine Right of Capital, Dethroning the
Corporate Aristocracy
Bye Bye Manufacturing. Now Bye Bye
Hi Technology. – 6/6/08
We
have perceived our advanced technologies as a major contributor to our economy,
at a time when our manufacturing was becoming less competitive and employing
many fewer workers. During the hi tech
bubble, hundreds of thousands of jobs were added. But then came the bust eliminated many jobs. Now our high technologies are facing new
competition from abroad and our high technology jobs are being outsourced. High technology workers who thought they had
secure careers are losing their jobs and finding it difficult to find others.
Other
white collar jobs are also being outsourced.
One estimate is that 542,000 computer jobs, 259,000 management jobs,
181,000 architectural jobs, 79,000 legal jobs and 1.6 million back-office jobs
will leave between 2003 and 2015. When
these jobs leave, competition becomes more intense for remaining ones, which
depresses their wages. If neither
manufacturing, high technology, or other well paying jobs are no longer secure,
what can workers do to secure jobs which provide a middle class standard of
living? For
more.
Whither Our Economy? Yuk! – 6/6/08
Lousy Bush Economy
Our economy
has been hurting us ever since President Bush took office:
·
Between
March 2001 and March 2008 the nation lost almost 3.3 million manufacturing
jobs, and only gained 5.3 million jobs overall — just slightly more than half
the number of jobs needed to keep pace with the 9.8 million people added to the
labor force during that period. That's why the unemployment rate is 15.7
percent higher in March 2008 than it was in March 2001. (Bureau
of Labor Statistics)
·
The
share of the population with jobs declined from 64.3 percent of the population
in March 2001 to 62.6 percent of the population in March 2008. It's the first
time on record that a period of "economic recovery" has been marched
by an actual decline in the employment rate. (Bureau
of Labor Statistics, Economic Policy Institute)
·
Hourly
wages rose 3.6 percent over the past year, the slowest growth rate in two
years, and well behind recent inflationary readings, which have been around 4
percent. What's worse, employees on average have been keeping their workers on
the job for fewer hours in the past year, so weekly earnings are up only 3.3
percent over the past year. (Economic Policy Institute).
·
Since
the late 1990's, average incomes fell by 2.5 percent for those in the bottom
fifth of the income scale and rose by just 1.3 percent for those in the middle
fifth. Meanwhile, incomes climbed 9 percent for those in the top fifth, not
counting income from capital gains. (Economic Policy Institute)
·
At
the same time, the consumer price index from March 2001 to March 2008 has
increased 17.5 percent. (Inflation Data.com)
·
People
in the top 1 percent of the income bracket captured about half of the overall
economic growth between 1993 and 2006. (Emmanuel
Saez, University of California, Berkeley)
The collapse of our Bush Administration inspired housing bubble
and consequent lack of borrowing has added to our depression. Our rapid increase in oil prices has
contributed to inflation. Thus we now
have stagflation. For more about
how American workers are squeezed by stagnant incomes and rising prices.
Worsening Housing Market
The
delinquency rate on mortgages is still increasing. Home prices are falling faster, causing more
delinquencies. Falling home and stock
prices are causing declining net worth among many middle class people. Credit is more difficult to get as banks
shore up finances harmed by delinquencies.
Home sales are still falling. The
number of existing homes for sale is increasing. For more.
Surging Gasoline Prices
Surging
oil prices act like a tax imposed by oil producing nations and companies,
draining away our money, often to foreign countries. Addicted to gasoline and having little credit
left, most of us are cutting spending on other items. Retail sales are suffering, especially of
more expensive items.
Sales
of gas guzzlers are down. Owners are
trading them in for more fuel efficient models.
A few are using public transit.
But for foreign sales, our big three American auto manufactures might be
out of business. Both oil and housing
woes are felt most by our middle income groups, since higher income people have
money and lower income people often have neither houses or cars.
The
increase in gasoline prices will result in all of the economic stimulus tax
rebates simply going to buy slightly less gasoline than before. (A $600 tax rebate buys 600 gallons of gas at
$1 per gallon more than not long ago.) Thus creating no new jobs. Our government borrows money from oil rich
nations, rebates it to taxpayers, who give it back to oil rich nations by
paying for their gasoline.
States and Municipalities Cutting
Spending
At
$1.8 trillion annually in a $14 trillion economy, the states and municipalities
spend almost twice as much as the federal government, including the cost of the
But
in our depressed economy, state and municipal sales tax and other revenues are
falling. Many of them will soon have to
cut their spending, with additional harm to our economy. For
more.
Federal
Reserve Faces Quandary
When a central bank has an uncomplicated
recession to deal with, it can cut interest rates. When it faces a clear-cut
case of inflation, it can raise them. The worst nightmare of any central banker
– especially one with a tradition of political independence to defend – is
stagflation, when raising interest rates to curb inflation will provoke a
recession or deepen one that has already begun.
It is a problem that our
Growing -
and Sharing - the Economic Pie – 6/6/08
From
the Economic Opportunity Institute’s
blog: Washington Policy Watch
Today’s workers have a lot on
their plates. Whether it’s the cost of food, gas and housing, keeping a steady
job in a rapidly changing economy, finding long-term care for parents or
daycare for the kids - and for many people, it’s all that and then some - it’s
too much to take on alone.
The strain is showing on our
families. More and more middle-class Americans say they aren’t better off than they were five years ago, reflecting
economic pressures amid growing personal debt. People are are worried they will run out of money in retirement.
It’s not the first time we’ve
faced big
problems.
Historically, Americans have drawn security from our willingness to pitch in
together in the face of a crisis. We’ve created opportunity based on a moral
commitment to ensuring each of us gets a fair start in life. And by doing so
we’ve unleashed the power of prosperity, giving people the freedom to make of
their lives what they will.
Every talking point and debate
about taxes and government today is really about whether we can apply these
same time-tested lessons to modern problems. For example:
·
Pitching in: Our parents and
grandparents funded the GI bill, Medicare, Social Security, and a new freeway
system for our country. Everyone benefited to some degree, but very wealthy
individuals and businesses that have reaped greater rewards from shared public
investments have a natural obligation to pay a larger share of that debt forward to the next
generation.
·
Good schools, healthy senior
citizens, a safe retirement, well-trained workers, and a 21st century
transportation system all cost money, and are worth every dime.
·
A fair start: Parents are a child’s
first and best teachers, but downward pressure on wages and benefits is makes
it all but impossible for many parents to be there for their kids. That’s not a
fair deal for our children, parents or employers.
·
As Social Security does for our
elderly, Family Leave Insurance does for our youngest - it protects
vulnerable lives that can’t easily protect themselves. It gives parents a real
choice to care for their families, and provides a boon to small shops as well,
by leveling the playing field with big businesses.
·
Unleashing prosperity: Inflation
doesn’t just erode household purchasing power, it hurts local businesses
because people have less money to spend on main street. A decent minimum wage,
indexed to inflation, plows more dollars right back into the local economy.
·
These annual cost of living
adjustments provide employers with predictability. Employers know well in
advance the amount of the modest annual increases, rather than facing
occasional big jumps that result from a partisan political process.
So we face big challenges -
but collectively, we’ve got good answers to them. For
more.
Reducing Our Military Spending – 6/6/08
Of $1.47 trillion worldwide military spending, our
Since 2001, our Bush Administration’s military budget
requests have more than doubled.
Congress has approved every request, sometimes even expanding them. Our requested budgets now include:
1.
More
than $130 billion to maintain more than 800 military installations throughout
the world
2.
$15
billion in congressional pork projects, often having little utility in
protecting us
3.
More than $44
billion for weapons systems (including the F/A Raptor, Ballistic Missile
Defense, Virginia-Class Submarine, DD(G-1000) Destroyer, V-22 Osprey and C-130J
transport plane) most of which counter no realistic threats and in addition
have safety, technical and cost problems
4.
$15 billion
for building and maintaining our nuclear weapons (in Energy Department budget)
5.
More than $11
billion in military aid (in State Department budget)
6.
$170 billion
estimated expenses for
7.
Hundreds of
billions in long term health care costs for our military veterans.
Without endangering our security, we can begin saving
money by eliminating most of the $255 billion spent on items 2-6 on this list
and many of our military installations.
Then proceed to eliminate many other expenditures. With no likely invader of the
Global Warming Feeds Itself – 6/20/08
Excerpted from James Hansen’s Tipping Point,
Perspective of a Climatologist
We
are at the tipping point because the climate state includes large, ready
positive feedbacks provided by the Arctic sea ice, the West Antarctic ice
sheet, and much of
Earth is heated by sunlight and,
in balance, reaches a temperature such that an amount of heat equal to the
absorbed solar energy radiates back to space. Climate forcings are imposed,
temporary changes to Earth’s energy balance that alter Earth’s mean
temperature. Forcings include changes in the sun’s brightness, volcanic
eruptions that discharge sunlight-reflecting particles into the stratosphere,
and long-lived human-made greenhouse gases that trap heat.
Forcings are amplified or
diminished by other changes within the climate system, known as feedbacks. Fast
feedbacks— changes that occur quickly in
response to temperature change—amplify the initial temperature change,
begetting additional warming. As the planet warms, fast feedbacks include more water vapor, which traps additional heat,
and less snow and sea ice, which exposes dark surfaces that absorb more
sunlight.
Slower
feedbacks also exist. Due to warming, forests and shrubs are moving poleward
into tundra regions. Expanding vegetation, darker than tundra, absorbs sunlight
and warms the environment. Another slow feedback is increasing wetness (i.e.,
darkness) of the Greenland and
The predominance of positive
feedbacks explains why Earth’s climate has historically undergone large swings:
feedbacks work in both directions, amplifying cooling, as well as warming,
forcings. In the past, feedbacks have caused Earth to be whipsawed between
colder and warmer climates, even in response to weak forcings, such as slight
changes in the tilt of Earth’s axis.
The second fundamental property
of Earth’s climate system, partnering with feedbacks, is the great inertia of
oceans and ice sheets. Given the oceans’ capacity to absorb heat, when a
climate forcing (such as increased greenhouse
gases) impacts global temperature, even after two or three decades, only
about half of the eventual surface warming has occurred. Ice sheets also change
slowly, although accumulating evidence shows that they can disintegrate within
centuries or perhaps even decades.
The
upshot of the combination of inertia and feedbacks is that additional climate
change is already “in the pipeline”: even if we stop increasing greenhouse
gases today, more warming will occur. This is sobering when one considers the
present status of Earth’s climate. Human civilization developed during the
Holocene (the past 12,000 years). It has been warm enough to keep ice sheets
off North America and Europe, but cool enough for ice sheets to remain on Greenland and
The warming that has already
occurred, the positive feedbacks that have been set in motion, and the
additional warming in the pipeline together have brought us to the precipice of
a planetary tipping point. We are at the tipping point because the climate
state includes large, ready positive feedbacks provided by the Arctic sea ice,
the West Antarctic ice sheet, and much of
Oil Drilling in
Proponents of drilling for
oil in
Oil produced by drilling
in
We might not buy quite as
much from other countries, but this won’t matter. Other countries will always sell us oil as
long as we pay the worldwide prices. For more. For
more.
Bye Bye Oil. Bye Bye Lifestyle – 6/27/08
This
commentary is based upon this week’s
recommended books. Global oil and
natural gas production are peaking and beginning a steady decrease. Demand is continuing to increase. Oil prices are steadily increasing, even at
an increasing pace. This is becoming
most obvious as we face steeply increasing prices at the gas pump. We are beginning to change to more fuel
efficient cars. But as gasoline prices
continue to increase, we will have to greatly curtail our driving.
With
insufficient public transit, many of us will have to move nearer to our jobs
and shopping. Our urban areas will
become more populated and our suburban areas less populated. Our urban housing will become more expensive. Home heating costs will increase. Many of us will be pushed to living in smaller
homes, with more occupants per home. For
more.
Food
prices will increase. Increased
transportation costs will increase the prices of other consumer goods. With less money left over after paying for
our housing, auto and food, we will spend less on increasingly expensive
consumer goods. With smaller housing
space, we will have less room to put them anyway. We will get rid of much stuff, more carefully
maintain what we keep, and recycle stuff to save money.
Our
economy will continue to suffer from stagflation. Increased costs resulting from more expensive
energy. Reduced employment due to
reduced consumer demand due to consumer dollars going to foreign oil
producers. Many industries will suffer,
although a few may benefit. While
increased shipping costs will reduce competition from foreign manufacturers,
but manufacturing is energy intensive and our demand for manufactured goods
will decrease. Much depends upon how
quickly we can regulate our financial bubble to divert resources to
infrastructure investment to reduce our costs, increase our productivity and
create jobs.
On
top of our present indebtedness, our exposure to bankruptcy from uninsured
illness costs and divorce, we will experience financial strains from the
imposed change in our lifestyles. Especially
those of us who most attempt to maintain our present consumption. Many of us will suffer a grievous fall in our
incomes and standard of living.
Even
after our forced changes to a less wasteful, less consumption oriented
lifestyle, we will still fare far better than most people in less
industrialized countries. Having little
now, they will have less. Unfortunately,
we may be so concerned with our own misfortunes that we have little left over
for them.
But
we can learn from the Europeans who have never succumbed to urban sprawl and
have maintained their public transit. We
have much to do to catch up to them. But
we still have resources to do it if we act quickly.
For
a more specific view of these trends, read our
commentary of Puget Sound’s future.
Bye Bye Water. Bye Bye Fertilizer. Bye Bye Food – 6/27/08
Our
green revolution has depended upon increased irrigation and fertilization. In much of the world, usable water is
becoming more scarce. Aquifers are being
depleted. Global warming is reducing the
formation of snowpacks which form the source of rivers. The price of fertilizer is increasing due to
increasing prices of natural gas from which it is made. The result is decreasing farm production.
Global
warming is causing droughts and floods, rendering farmlands unsuitable for
growing crops. Some food cropland is being degraded by poor farming
practices. Some food cropland is being
converted to residential, commercial, manufacturing and transportation
uses. Some is being converted to fuel
cropland. Some foods are being diverted
from human to animal consumption. All of
these factors are reducing the amount of food that is produced and available
for human consumption.
The
increased competition for food is producing winners and losers. The losers are mostly poor people in poor
countries. As malnutrition renders them
vulnerable to disease, they die quietly.
As the numbers of dying increase, their deaths become more accepted as
simply inevitable. For the rest of us,
life goes on as usual, with only the discomfort of higher food prices, which
leaves us with less for other consumption.
Three Crises. Wasted Years. – 6/27/08
As
noted by our recommended
books, we are facing three crises simultaneously.
1.
Global oil and
natural gas production is peaking while demand is increasing, sending oil
prices rapidly up and causing stagflation among nations which must import oil,
including especially our
2.
Our
unregulated financial services industries (which has bubbled to 20% of our
economy) is collapsing. Most of us don’t
realize that even as our government debt has soared, our private (corporate and
household) debt has risen much more. We
are now dependent upon foreign lenders who can withdraw their loans, causing
the collapse of our dollar and forcing our Federal Reserve to increase interest
rates, further depressing our economy.
3.
Global warming
is beginning to clobber the world and us with increased draught, floods,
storms, insect infestations and other threats to our food production, health
and property.
Since
the Reagan presidency began, we have wasted 28 years doing virtually nothing to
conserve energy or find alternative sources to oil and natural gas. At least, since the
Even
with an Obama presidency and Democratic control of our congress, there is no
guarantee that effective actions will be taken to deal with these crises. Obstacles include both public consumer habits
including addiction to big houses, cars and lots of stuff. And opposition from lobbyists for campaign
contributing corporations which benefit from our consumption. Perhaps the most important issue of 2009 and
beyond will be whether our officials can defy lobbyists and refuse to pander to
public opinion, attempting to shape it if possible and defying it if
necessary. Can Liberal realists
sufficiently support those legislators who attempt to respond constructively to
these crises?
Notice
that in our
Is Speculation
Affecting Oil Prices? – 6/27/08
George
Soros (who should know better than I) says that oil prices are in a bubble due
to speculation. So do others. But based on the recommended
books, I believe that oil production has peaked. With demand for oil climbing, prices must
increase. For more. For more. The increases that we are experiencing are
consistent with that. Suppose that
speculation has pushed them higher than they would otherwise be, say by 30%, so
that oil should be at $100 per barrel instead of $130. Even if speculation decreased, oil would soon
increase to $130 a barrel. I believe
there is little if any bubble to be popped.
Many
events can affect the production of oil, enough to crease prospects of a short
term shortage. Thus the volatility of
the price. That won’t change either.
Paul
Krugman and others believe that as happened in the 1980s, higher prices will
stimulate conservation (increased fuel efficiency), production of additional
oil and production of alternative energy products. Any combination of these would by lowering
demand or increasing supply result in lower prices. Conservatives, including John McCain argue
that the market will produce solutions.
But the recommended books suggest that this won’t happen. Most effective in the short run would be
conservation, but even with increased prices, Americans and others will resist
giving up their driving and other consumption which utilizes so much oil.
I
believe we are going to experience a major stagflation, aggravated by our
present public and private indebtedness.
Our responses will be too slow to stop significant global warming.
Hello Debt. Bye Bye Credit. – 7/4/08
Following the second world war, our gross national
product soared so fast that it greatly outpaced our government debt, making the
latter much easier to service. Returning
veterans went to school People found
jobs and bought suburban houses with FHA and VA financing. We built a national freeway system. Social security helped our seniors escape
poverty and dependency. Our civil rights
movement and Great Society programs and the Voting Rights Act helped poor
people, including African Americans.
Our total debt (public, corporate and household) as
a percentage of GNP remained steady. A
declining percentage of public debt was offset by increasing percentages of
private debt which fueled demand and investment.
Then the oil shocks of the 1970s. Competition from recovered Japanese and
European manufacturing. Stagflation
hit. To maintain family spending, most
women became employed. We begin borrowing big time. Using credit cards. Obtaining second mortgage lines of
credit. Or refinancing. Still feeling pinched, we demanded tax cuts. Ronald
Reagan was elected to lower taxes. And
with the support of Reagan Democrats – White men feeling competition from women
and Blacks and feeling neglected by the Democratic Party.
Tax cuts and increased military expenditures
created large federal deficits, a federal debt that grew faster than the
economy, and Federal Reserve stimulated high interest rates to counter
inflation. Mutual Savings were freed to
make speculative loans. Facing
competition to maximize returns, bankers made government-insured risky loans to
construct buildings beyond market demand.
When the resulting bubble collapsed, our tax payers paid back the
depositors ($200 billion). A pattern of
private profit and socialized risk that would be repeated in our current
sub-prime housing bubble and collapse.
Tax law changed to favor corporate debt financing
over equity financing. Junk bonds fueled
corporate takeovers, with resulting huge debts.
These takeovers, also wrecked many productive companies, stripping out
their assets, employee benefits and laying off their employees – an enormous
disinvestment.
As fast as government debt was increasing, private
debt (business and household) was increasing even faster. From 1974 to 2006, Federal debt increased 14
times from $365 to $4,885 billion. State
and Local debt increased 10 times from $208 to $2,007 billion. Household debt increased 19 times from $680
to $12,873 billion. Corporate debt
increased 26 times from $1,160 to $24,979 billion. For each dollar of public debt, we have $1.87
of household debt and $3.62 of corporate debt.
Ouch!
Financial deregulation allowed major increases in
our finance sector as new ways were created to move money between lenders and
borrowers, between savers and investors.
While our manufacturing was shrinking from 25% to 12% of our economy
(from 1970s to 2006), our financial services increased from 12% to 20%. From 1956 to 2006, assets of banks and
insurance companies declined from 78% to 30% of all financial assets. Assets of pension, mutual , hedge, private equity,
leverage and mortgage funds increased from 16% to 57%. Security and real estate brokers and dealers
increased from 1% to 10%.
Instead of producing things, more of us are
shifting money around. We experienced a
dot.com boom and bust. And now a housing
boom and bust. Inadequate regulation led
to stockholders, managers, employees, suppliers, lenders, everybody becoming
less secure. More ripped-off or just
victims of takeovers and collapses. So
here we are. In debt, publicly and even
more privately. The value of our homes
and financial investments is falling.
Inflation continues. We have
foreign debts which may be the plug that gets pulled.
Notice that if we disregard all the financial
stuff, of who owes who what, our
·
Regulate financial institutions
to curb speculation which inflates without investing.
·
Replace subsidies which yield us
no social benefits with subsidies which do.
·
Encourage fiscal responsibility,
conservation and other measures to reduce federal and trade deficits.
·
Shift spending from consumption
to investment (public physical and social infrastructure, alternative fuels and
new technologies)
·
Alter our tax system, strengthen
our labor unions, provide universal access to quality health and education, and
take other steps to encourage a fair distribution of income and expenditures.
·
And more, which I don’t think of
now.
Can we do
this. Yes, we can? But it won’t all be easy or fun.
Global Warming and
Barack Obama’s Plan – 7/11/08
Laboratory
studies show that greater concentrations in air cause ambient air temperatures
to rise. During the last 100 years, our
CO2 emissions have increased, CO2 levels in the
atmosphere have been rising and global temperatures have increased about on
degree Celsius. During the last hundreds
of thousands of years, a strong correlation exists between atmospheric CO2
levels and surface temperatures.
These are the evidence that our CO2 emissions are causing
global warming.
Global
warming will cause increased draughts, floods, and storms to the detriment of
our habitation and food production. It
will also allow predatory insects to survive warmer winters to attack us and
our food plants. The effects will be the
impoverishment, death and migration of large numbers of our people and other
animals and plants. For more. Who will
suffer most & least from global warming?
Obama’s
Plan to deal with global warming has 4 parts oriented to reducing carbon
emissions by 80% by 2050. [Reported in Chapter 6 of John R. Talbott’s 2008
book, Obamanomics – a must read for Liberals.]
1.
Introduce a market-based cap and trade system to limit carbon emissions
Establish
cap and trade system with auction of all of an increasingly limited number
pollution credits
Create
domestic incentives for forestry, farming and ranching to capture atmospheric
CO2.
2.
Emphasize conservation and encourage energy efficiency
Increase
fuel economy standards
Set
national building efficiency standards
Invest
in a digital smart utility grid
3.
Encourage renewable and alternative energy use
Invest
$150 billion over 10 years to advance clean energy technologies
Double
funding for energy research and development
Invest
in training workers for and transitioning industries to implement clean
technologies
Develop
and deploy clean coal development
Deploy
cellulosic ethanol
Require
increased substitution of renewable non-polluting fuels
4.
Reestablish
Create
a global energy forum
Re-engage
in the U.N. Framework Convention on Climate Change
A
recent growth industry is books that tells us how to personally respond to the
threat of global warming. Some examples
are:
·
Jeffrey
Hollender with Linda Catling, 1995, How
to Make the World a
·
Karen M.
Jones, 2005, The Difference a Day Makes,
365 Ways to change Your World in Just 24 Hours
·
Nick Temple
(Ed.), 2005, 500 Ways to Change the World
Becoming
more virtuous is good, but not sufficient.
We need to use regulation and markets to encourage and mandate virtuous
action.
Commodity Prices: Market or Speculation
Produced? – 7/11/08
Prices
have been rapidly increasing for many commodities, not only oil. Increases include: Nickel (452% from 2002 to
2007), Copper (360%), Zink (314%), Oil (177%), Gold (125%), Steel (117%),
Aluminum (95%) and corn (70%). I think
natural gas and other commodities could be added to this list. Water usually isn’t considered a commodity. But it is also
becoming scarce.
I
find it difficult to understand financial products, markets and
regulation. But I suspect that with many
slow economies, mining and other commodities producers did not invest to
increase their production. They failed
to recognize that the economies of
Oil Prices per Barrel
–
7/11/08 Source of
Graph
Many
pundits are still stating that
Four Dollar Gas Isn’t All Bad – 7/11/08
Increasing
transportation costs cause: more frugality: more walking and biking – less
obesity; Less and slower driving; less roadway wear and tear; fewer traffic
accidents, deaths and cheaper insurance; less urban sprawl; less traffic; less
Pollution; 4-day workweeks and time spent with family; manufacturing jobs to
come home; and more. We could also tax
windfall profits, without increasing the price of oil. For
more. For more.
Just
as the distinction between pre-9/11 thinking and post-9/11 thinking is
useful. So is the distraction between
thinking before and after the peaking of oil and natural gas production and
water and food. Here are some of the
contrasts:
Oil
and gas price increases are temporary.
Oil
and gas price increases are permanent.
Enough
new oil and gas resources will be found.
Enough
new oil and gas resources won’t be
found.
We
can increase oil and gas production.
We
can’t increase oil and gas production.
We
can quickly use new energy resources.
We
can’t quickly use new energy resources.
Energy
conservation isn’t necessary.
Energy
conservation isn’t necessary.
We
can continue our suburbanization.
We
must infill urban areas.
We
need to plan for more travel and traffic.
Travel
and traffic will decline.
We
will continue our huge consumption.
We
will have less to spend on consumption.
Housing Loan Regulators Are Missing in
Action – 7/18/08
Millions
of fraudulent housing loans. Repackaged
to hide their risks. No one watching and
reporting. Not the credit rating
agencies. Not the Federal Reserve. Not the congress. Not the Media. Now our public is paying millions to bail out
the private financial organizations which bought the repackaged loans. Plenty of blame to go around. Lets start with our congress members who we
elected to create fiscally responsible policies. For
more. For
more. For more. For
more. For more.
Obama’s Approach to Creating a Fair Economy – 7/18/08
In
his 2008 book Obamanomics, How Bottom-Up
Economic Prosperity Will Replace Trickle-Down Economics, John R. Talbott
notes the difficulties that workers and would-be workers face under the Bush
economy. He then presents the approaches
that Barack Obama will use to make our economic pie larger and more fairly
divided.
Barack
Obama will fight to destroy the ability of lobbyists to influence our government
to grant more power and wealth to corporations and individuals who already have
an excess of wealth and power. He will
resist and even reverse monopolistic mergers which result in undue economic and
political power. He will regulate
businesses, industries and markets to prevent their abuse of their consumers,
workers, suppliers and shareholders and of our environment and public. Fraudulent actions against our government and
our people will be punished.
Obama
will eliminate direct and indirect subsidies to wealthy and powerful
businesses, investing the money to create jobs.
Some of these jobs will be to rebuild our physical and social
infrastructure. Others will be to
develop new environmental, energy, agricultural, medical and other technologies. Conservation of our resources and increasing
our energy efficiency will be high priorities.
As will be developing sustainable sources of non-carbon polluting
energy. Additional money for investing
and lower taxes on most Americans will come from increasing taxes on high
income earners. Estate taxes will be
maintained.
A
pollution cap and trade system will both reduce pollution and increase
innovation. Farmers and foresters will
be rewarded for conserving land, water and biological resources and
sequestrating carbon dioxide. Our
country will cooperate with and lead international efforts to control global
warming.
Vehicle
mileage standards will be increased. New
and old buildings will be made more energy efficient. Energy distribution systems will be improved.
Obama
will remove the barriers to unionization and strikes. The Employee Free Choice Act will be
passed. Permanent employees could not be
classified and treated as temporary workers.
Businesses will be required to offer more paid six days. The Family and Medical Leave Act will be
expanded to allow workers to take leaves for more purposes.
To
provide living wages, the minimum wage will be increased and indexed. The earned income tax credit will be
increased. The Child and Dependent Care
Tax Credit will be increased. Subsidies
will assist all qualified students to attend college on the condition that they
provide service. Assistance and
subsidies will be available to those who conserve energy. Home mortgage, credit card and payday loans
will be regulated. OSHA worker
protections and Consumer protections (including food and medical drugs) will be
strengthened and enforced. Pensions will
be made transferable and protected from employer bankruptcy.
Cost
controlled universal health care will reduce family health costs. Both physical and mental health care will be
universally available. Cost beneficial
preventive care, including close monitoring of patients with chronic
illnesses. Bargaining with health care
providers will lower costs. More
efficient medical record keeping and communication systems will be
promoted. Product and service quality
will be measured, monitored and enforced.
Our
federal government will invest more to ensure that everyone has equal access to
quality education. These investments
will include early childhood education, after school programs, providing for
balanced school curriculums including math, science, communication, art,
healthy living and other skills.
Attention will be given to developing a diversity of educational
approaches sensitive to students’ varying needs and oriented to a variety of
different career paths. Teachers will be
better paid, especially those who face the severest challenges.
Barack
Obama will promote fair trade, in which traded goods and services do not
violate environmental, labor and
consumer safety protections. Companies
will not receive subsidies or receive tax breaks for moving jobs overseas. Immigration will be legalized and protected
from abuse by employers.
Working
closely with congress and supported by a vast grassroots movement, Obama will
work to implement these reforms and more.
Together we can do it. We can end
our National Nightmare and restore our American Dream. Besides reading Talbott’s book, you can visit
Obama’s website to learn more
about these reforms.
Naomi Klein: Shock Crony Capitalism – 8/1/2008
Several months ago,
Naomi Klein has shown that a
series of apparently unrelated events are part of a pattern. Great books often introduce a new paradigm
for understanding reality. Naomi Klein
gives us a fuller understanding of events described by such books in our Books
for Liberals list as:
·
Norm Chomsky, 1979, The
·
Christopher Hitchens, 2002, The Trial of Henry Kissinger
·
John Perkins, 2004, Confessions of an Economic Hit Man*
·
Jeffrey D. Sachs, 2005,
The End of Poverty, Economic
Possibilities for Our Time
·
Zbigniew Brzezinski, 2004,
The Choice: Global Domination or Global
Leadership*
·
George Soros, 2004, The Bubble of American Supremacy*
·
John Newhouse, 2004, Imperial
Our American foreign policy has
always been influenced by the foreign interests of American businesses. During the Cold War, we supported numerous
foreign dictators who treated American businesses favorably at the expense of
their own workers, small businesses, consumers, taxpayers, resources and
environment. We assisted the overthrow
of Democratically elected leaders in
Naomi Klein describes the
increasing influence (beginning in the 1950s) of the
·
Removing all rules and regulations which prevented
maximizing profits.
·
Privatizing all public activities through which
private businesses could make a profit.
·
Reduce funding of the physical and social
infrastructure.
·
Reducing taxes, especially for the wealthy (who
supposedly would invest their money).
The neo-conservatives are wrong. Wherever this agenda has been adopted, the
result has been a crony capitalism, increasing income and wealth disparity, and
reduced prosperity for the great majority of people.
In addition, the
Neo-Conservatives quickly learned that democracies resisted the adoption of
this agenda. They realized that they
first had to destroy democracy and popular resistance. In
Neo-Conservatives then
discovered that even democracies could adopt much of their agenda, if they were
first subjected to an economic shock. In
the aftermath of oil price increase influenced stagflation, Ronald Reagan was
elected
South American and other
countries returned to democracy in the mid-1980s. Under dictators, many countries had borrowed
large sums of money which were never invested to be able to service these
loans. Foreign capital also came. Then when U.S. Federal Chairman Paul Volker
raised interest rates to quell American inflation, indebted countries could not
service their debts. They found it
necessary to ask the IMF to arrange new loans to service their debt. Acting as an enforcer or collector for the
American banks who had made the loans and staffed by Neo-Conservatives, the IMF
required indebted countries to adopt the Neo-Conservative Agenda in order to
secure needed loans. This resulted in
further plunder of their public assets, declines in their infrastructure and
economic collapse.
One major breakthrough for the
Neo-Conservatives was the 1989 adoption of the Washington Consensus by the
American Government, the World Bank and the International Monetary Fund
(IMF). This included the opening of
borders to foreign trade and capital and the adoption of the Neo-Conservative
Agenda.
In 1989, the Berlin Wall came
down, followed by the collapse of Soviet communism. But new leaders were unsure of what economic
system should be adopted. Instead of
adopting the managed capitalism model which was so successful in western
Europe,
I believe that Naomi Klein is
wrong when she suggests that
Following
In 2000, Neo-Conservative George
Bush became
The 2005 tsunami produced
similar results in
Since 1980, our
Having read the books listed
above, I was aware of many of the events which Naomi Klein describes, including
To understand how to inoculate
countries against Neo-Conservative crony capitalism, we must understand how
some countries have been able to resist it.
Was the Marshall Plan implemented oppositely from the Neo-Conservative
vision because the Neo-Conservatives were not yet formed? Why weren’t the funds used to pressure
The answers to these questions
are important, so we can understand how to roll back Neo-Conservative
crony-capitalism in the
To Revive our Economy, Investment or Consumption –
8/1/2008
When depression threatens, there
are two ways to increase demand. One is
to make it easier to consume, by providing tax cuts or making it easier for
people to borrow and spend, through easier access to credit with lower interest
rates. The other is to expand investment
through government investments in infrastructure or encouraging private
investment, especially in the creation and development of new
technologies.
Since at least the 1960s, when
John Kenneth Galbraith argued that our economy was imbalanced with too much
consumption and too little investment (especially public investment), Liberals
have argued for more public investment.
Conservatives also say they are for more investment, but their tax cuts
encourage consumption, while their budgets cut public investment. As a result they kill the goose that lays the
golden eggs. Our economy always does
better when Democrats control our government, especially consistently Liberal
Democrats.
George Bush cut taxes and claims
that this has helped the economy. But in
spite of heavy government consumption (particularly military spending and
corrupt privatization), our economy has been very weak. John McCain and Republicans want to continue
and extend these tax cuts. Although our
government, businesses and households have accumulated record debts, our
Federal Reserve lowers interest rates and increases access to loans to increase
our debts further. At some point, this
must result in an enormous crash, which may already be developing as a result
of the sub-prime loan and credit collapse.
What the Democrats must do next
year is shift large sums of money from consumption to investment. Higher taxes on our wealthiest must be restored, Subsidies to industries which pay record
returns to their mostly wealthy stockholders or buy their competitors while not
investing must be reduced. Money must be
invested in restoring our physical and social infrastructure. And in creating and developing new
technologies, especially conservation non-carbon based energy production
technologies.
For economic fairness, Democrats
must also shift from consumption by our wealthiest people to consumption by our
less wealthy people. Through limiting
home loan interest deductions, increasing our minimum wage and earned income
tax credit, shifting our payroll taxes to a value-added tax, facilitating
unionization, encouraging retirement saving and other such programs.
Free Choice Act -> Unionization -> Social Benefits –
8/1/2008
On July 28, 2008,
SEIU Secretary-Treasurer Anna Burger told their convention:
“The
Employee Free Choice Act is a simple law that does 3 profound things:
·
It
says a majority of workers can decide to have a union
·
Imposes
big penalties on employers who violate worker rights, and
·
Gives
newly-unionized workers guaranteed first contract through binding arbitration
No government interference. No corporate intimidation. No
ridiculous rules and roadblocks set up to block your rights.”
“Imagine a
world where five years after the Employee Free Choice Act is signed into law,
SEIU is organizing a million or more workers a year and the labor movement has
added 20 million members to its ranks. Through the Employee Free Choice Act
we've built a principled, permanent workers movement that will redefine
politics for the next century. Then just imagine what our movement could do:
·
A
real living wage for every single worker
·
Healthcare
for every child, guaranteed from birth
·
Guaranteed
retirement security
·
Quality
child care everyone can afford
·
A
tax system that rewards work
·
An
immigration system that is fair to everyone, everywhere, always
·
Environmental
policy that puts our planet and our children first. Forever.” For
more.
How Can We Resist and Turn Back Neo-Conservatism? – 8/8/2008
In last week’s newsletter, we summarized and
commented upon Naomi Klein’s 2007 book,
The Shock Doctrine. The Neo-Conservatives quickly discovered that
it was difficult to produce Crony Capitalism through deregulating, privatizing,
dismantling public services and reducing taxes on the rich in Democratic
Societies. Democracies must first be
overthrown and democratic tendencies suppressed through fear produced by shock
tactics.
What we have also learned
is that Crony Capitalism doesn’t produce the productive societies that
Neo-Conservatives proclaimed would happen.
It produces increased economic inequality. Unless repression can be sustained, people
power arises to restore Democracy as occurred in the
The
The increasing strength
of the International Criminal Court will penalize those who would impose
torture and murder upon Democratic activists, weakening the shock treatments
necessary to imposing Neo-Conservative Crony Capitalism. The forty year period (during and after the
Cold War) when Crony Capitalism thrived is hopefully over. We still need the international ability to
protect people from abuse by their own government and settle civil wars within
countries, such as in
Corporations: Three Strikes and You’re Out – 8/8/2008
Corporations are legally considered to be people,
with similar rights. Should they also
have similar responsibilities and punishments for their criminal behavior? We have enacted three strikes and you’re out
legislation to permanently lock up people who repeatedly break our laws. Why shouldn’t we similarly ban corporations
from doing business after they have repeatedly broken our laws?
We have also placed lifetime limits upon how long
people can receive welfare payments.
Should we also place lifetime limits upon how long corporations can
receive subsidies?
Do We Need More or Less Credit? – 8/8/2008
As we have noted before, American debt (government,
corporate and household) has increased enormously during the last 30
years. Our finance industry is now 20%
of our economy. Our financial workers are
getting paid enormous sums for creating debt instead of products. Much of the debt creation has been fraudulent
and abusive. Increasing debt wrecks
productive companies, while creating bubbles of unproductive ones. When the bubbles burst, the response of our
Federal Reserve, congress and administration has been to create, allow and
encourage more debt. We may now have
reached the limit at which our whole economy collapses.
What we need is not more debt, but more investment
in productive enterprise. Our government
should invest in maintaining and improving our physical and social
infrastructure, paying for it by fairly taxing higher income people who now
benefit from our infrastructure without paying to maintain it. Other public funds should be obtained by
canceling subsidies which have been given to wealthy and powerful
industries. The money saved should be
used to motivate the creation and implementation of new technologies, in such
industries as conservation and non-carbon based energy.
These investments in jobs will produce much more
demand to sustain our economy than have the tax cuts. These investments will provide sustainable
growth unlike simply expanding credit and debt.
Let’s provide our families with opportunities for more earned income
instead of more debt.
Barack Obama has stated that with our many pressing
needs, we can not eliminate our federal deficits as quickly as we would
like. By increasing taxes on those who
are now unfairly getting a cheap ride and diverting unhelpful expenditures to
helpful ones, we can meet our pressing needs while still beginning to reduce
our deficits. We should replace all
subsidies which aren’t tied to results with ones which are tied to results.
To discourage corporate debt, we should change our
corporate tax laws to eliminate deductions for interest paid on loans (as was
the case between 1986). This would
return much of our financing to equity financing instead of debt financing. No more junk bonds, fewer hostile takeovers
and strip-mining of company assets needed for long term production.
To discourage personal debt, we should eliminate
deductions for interest paid. An
exception might be an inflation adjusted $10,000 in interest paid on first
mortgages upon a primary residence. We
could eliminate deductions of interest on secondary (vacation) residences and
upon non-residential properties. To
reduce the dislocations, the new interest policies might be phased in over a
few years. One hope would be that over
time, housing prices would be reduced to levels such that more people could
afford them. And that new houses would
be more reasonably sized and priced.
We should also shift our payroll taxes to a
consumer tax, such as a VAT or sales tax, in order to reduce our motivation to
borrow in order to consume. An increased
proportion of our demand should come from investment to produce needed public
goods and services instead of consumption of private goods and services. These changes appear alien to our consumer
oriented society. But we can see them in
effect in
Economics Without Money –
8/15/2008
Economics
is primarily concerned with production and consumption and their causes. Production and consumption is a major part of
what people do each day. We get up and
on or off the job, produce things and consume things. Sometimes we produce for our own
consumption. More often we play a role
in producing some things and play a role in consuming other things. Most of our production and much of our
consumption is not individually, but done as part of work groups or consumer
groups.
Through
history, money in increasing varying forms motivates our production and
consumption. Understanding the many
forms of money (including their creation and distribution) is extremely
complicated. To simplify an
understanding of our production and consumption and how we would like it to be,
it can be helpful to first disregard the money which influences it.
For
example, people work in various industries to produce various goods. Over time, a smaller proportion of our people
work to produce food, more and then a lesser proportion have worked to
manufacture goods, and more people are providing services. We are now producing more goods and services
of more kinds. Fewer people are doing
physical labor and more are doing various types of management. Similarly, we are consuming more and
different types of goods and services.
We
can imagine being better off if more people more were building and maintaining
our physical and social infrastructure, and more were producing non-carbon
based energies,. Similarly we might
gain from more people providing high quality personal services, such as health
care, counseling and education.
We
can imagine being better off if we could maintain our security with fewer
people fighting wars. We might benefit
if fewer people were involved in our financial industry, including arranging
transactions and credit. Fewer people
might be involved in making decisions concerning who qualifies for health care
expenditures.
We
can imagine that our consumption changes with more public consumption and less
private consumption. With less
consumption which involves waste of materials and energy. With less consumption of polluting products
to ones which are less polluting. With
more consumption of quality personal services and less of personal things.
Once
we envision more desirable ways of distributing our labor and consumption (including
changes such as these examples and more), we can then look at how to change our
use of money to motivate these changes.
How can we as individuals and government provide more money to fund and
motivate the production and consumption that we want? How can we provide less money for the
production and consumption that we don’t want.
I
find this approach very optimistic. We
in the
Conservatives
will say that our regulations and funding will interfere with our free
choice. But they ignore that all
production and consumption (industries and markets) are regulated and
funded. At present, many of our
regulations and funding are the result of the influence of wealthy and powerful
private interests. We are simply
changing regulations and funding that have resulted from the influence of
private interests to ones which are more oriented to our public interests. A basic obstacle to doing this is to restrict
the influence of wealthy and powerful private interests, freeing up the
democratic influence of the great majority of our people.
As
we look ahead to the many momentous decisions to be made in 2009 and beyond, we
should begin to note the many types of consumption and production that we want
less of. The resources that we free up
from decreasing these are the ones which will enable us to have quality family
care (much provided by family members to each other), health care, education,
jobs, incomes, and retirement. Even more
resources result when we improve our physical and social infrastructure to
enable more efficient production and consumption.
A
final note: Don’t imagine that consumption is only using things and
services. Communing with nature, relaxed
mutual intimacy, pondering issues great and small and many other forms of
consumption require time more than goods and services. The one who gets the most toys is often not
the one who most thrives.
We
have the human resources. Will we
redeploy them?
Three Crises
During this last month, we
have commented on our three crises: Peak Oil (and food), Global Warming and our
Housing Loan sparked Debt Crisis. This
commentary will provide more detail concerning our Debt Crisis, its causes,
history and solution.
Our Peak Oil Crisis is affecting us the most right now, but as higher
market prices promote energy conservation, finding non-carbon based energy
technologies and less consumption, we may end up better off. Our
Global Warming Crisis is affecting us the least right now. But unless counter measures can be quickly
identified and adopted, it will affect us the most through time. Our
Debt Crisis is affecting us now and requires adopting measures counter to
those which are accustomed to for the last 25 years. We
must change from borrow and spend to earn and spend. See more at end of this commentary.
Our Increasing Debt
Thirty good economic years
occurred following World War II. Our
government had deficits. But our economy
grew much faster than our government debt, rendering service our debt easier. Since 1980, slower economic growth and
increased public deficits have caused increases in the ratio of our public debt
to Gross Domestic Product (GDP). Our
corporate debt has increased even faster than our government debt. Our household debt has increased even faster
than our corporate debt. Our total
credit market debt increased from 140% of GDP during the postwar period before
1984 to 335% (GDP = $13.8 trillion Debt
= 44.7 trillion. ) in 2006.
In 2006, our household
debt was $12.9 trillion. Our
nonfinancial business debt was $9.0 trillion.
Our federal government debt was 4.9 trillion. Our state and local government debt was 2.0
trillion. For a total government debt of
$6.9 trillion. In addition, our financial
business debt was domestic - $14.2 trillion and foreign - $1.8 trillion. The total was $44.7 trillion. If all this debt was divided among each of us
300 million Americans, each of us would owe $150,000. Our median household income is $50,000 and
households typically include more than 2.6 members. To pay off their debt, our typical household
would have to pay 7.8 years total income.
In 1945,
History of Our Debt Crisis
End of the Golden Years
The golden years following
World War II came to an end in the mid-1970s. Having recovered from World War II, Japanese
and European companies provided increased competition for
1.
Most women who
weren’t already employed found jobs.
2.
People
obtained more credit cards and began to increase their credit card debt.
3.
They supported
lowering taxes.
Stagflation and Paul Volcker
Two oil price shocks (1973
and 1979) produced stagflation. To end
our inflationary expectations, our new Federal Reserve Chairman Paul Volcker
increased interest rates, creating a debt crisis among borrowing countries
overseas (especially in South America and Africa) and among America’s
farmers. A depression occurred in
1981-1982.
S & L Bubble
To enable Savings and Loan
banks to stay in business, they were allowed to increase the interest rates
they paid for money. To enable them to
pay back the money, they were authorized to diversify from home loans to more
risky commercial and other loans, including loans to enterprises of the owners
of the banks. A Moral Hazard was created in which entrepreneurs could profit
greatly, but if their enterprises failed, our government paid the losses. This created our S & L bubble which collapsed in 1989, costing our government
$150 billion to pay off bankrupt S & L depositors in S & L.
Note: When the Japanese
housing and stock market bubble collapsed in 1989, they refused to allow
bankruptcies to enable the renewal of the banking system unencumbered by failed
loans. The result was that the Japanese
economy has never fully recovered.
Reaganomics
In 1981, Ronald Reagan
became President. He cut progressive
income taxes and increased our defense budget, producing increased government
deficits and debt. Declining oil prices
and Reagan’s strong fiscal stimuli produced a recovery from the Paul Volcker
induced 1981-82 depression and a strong economy.
Social Security Trust Fund Hoax
As our progressive income
tax rates were decreased, the regressive FICA Tax rate was increased. In 1983, our regressive FICA tax rates were
increased to create a Social Security Trust fund, supposedly to ease the paying
of more to retired baby boomers after they began retiring in 2010. The money in the fund was used instead to
support increased government expenditures.
While the taxes of our high income people were cut, the taxes of our
medium and low income people often increased.
Anti-Unionization
Our Reagan administration
supported companies’ abilities to resist unionization and strikes. Union membership fell. Workers earnings failed to keep pace with
increases in productivity. Company
profits increased. The value of stocks
increased. Our capital gains tax rate
had been cut in 1978. Disparities in
income and wealth began increasing.
Debt Financing
Corporate interest upon
debt became tax deductible. Debt financing replaced equity financing. Corporate debt soared. From 1983 to 2007, corporate debt increased
from 150% to 325% of GNP. The era of
junk bonds, mergers and acquisitions, hostile takeovers, and golden parachutes
began. Companies were bought, stripped
of their assets (including investment in new products and markets, skilled
employees and employee benefits) and sold to provide tax breaks. Many productive manufacturing companies were
destroyed and the careers of their employees ruined. Many high income companies paid little or no
tax.
Corrupt Crony Capitalism
Deregulation and lack of
enforcement of regulation occurred.
Crony capitalism began to increase, with favored campaign contributors
receiving tax breaks, subsidies, protection from enforcement and other
benefits. More Reagan administration
officials were criminally charged and convicted than had occurred since the
Harding administration of the early 1920s.
Unregulated Banking
Separation of commercial
and investment banking which was legislated during the 1930s New Deal was
removed. In 1987, Alan Greenspan became
Federal Reserve Chairman. A market
fundamentalist, he opposed regulation.
Commercial banks could now loan or invest their federally insured
depositors’ money in a variety of risky ventures. More types and amounts of loans and
investments were unregulated.
Abuses abounded:
Unjustified and undocumented loans.
Loans to cronies. Loans with
usurious rates for less wealthy and with extra-favorable rates to cronies and
political allies. Loans based on
fraudulent information. Bait and switch
loans. Loans with hidden features,
especially low initial teaser rates which later increased markedly.
Increased Credit
Greenspan’s response to
any threatened slowdown in the economy was to increase the availability of
credit. He did so in anticipation of a
Y2K computer crash which never occurred.
He increased it again following the terrorist attack of 9/11/2001. Arguing that productivity increases created a
new economy not threatened by inflation, he failed to increase regulation or
margin requirements during the dot.com bubble of 1995 -99. Assuming that housing values would continue
to increase, Greenspan responded the same during the housing bubble of 2002 –
2005. To delay crashes, Greenspan
increased the availability of credit. These policies increased the magnitude of
the bubbles and the following crashes.
Unfortunately, Greenspan failed to heed former Federal Chairman William
McChesney Martin’s stance that the job of the Federal Reserves “to take away the
punch bowl just as the party gets going,"
Contrary to prevailing
wisdom, the federal surpluses during the President Clinton’s second term were
not due to his tax increases on high incomes or his restrained spending. Federal surpluses resulted from increased
capital gains resulting from the dot.com bubble.
Our Housing Bubble
Our Housing Bubble of
2002-2005 resulted from various factors, including:
1.
Encouraging
home ownership, our Bush Administration ignored fraudulent practices. Among new mortgages, sub-prime mortgages were
20%. $2.6 trillion was loaned to people
with bad credit.
2.
Federal
Research Chairman Alan Greenspan kept interest rates low. Discouraged from speculating in the stock
market due to its decline resulting from the collapse of the dot.com bubble,
people begin speculating in residential, vacation and rental homes.
3.
Home owners
acquired and used lines of credit based upon second mortgages on their
houses. Due to these home equity loans,
home equity declined markedly.
4.
Unregulated
nonbank lending organizations encouraged fraudulent (sub-prime and other) home
purchase loan applications by employees and independent brokers. Adjustable rate loans equal or greater than
100% of house value with initial teaser rates were sold to buyers who did not
have the income to repay them.
5.
Lending
organizations repackaged loans into various securities with different risks,
but resting on a base of fraudulent information. In lieu of regulation, rating agencies
(Standard and Poor’s, Fitch, and Moody’s) were supposed to monitor and rate
securities; but they failed to discover problems until it was too late. These mixed and matched securities were sold
to banks, pension funds, hedge funds and other customers who now don’t know
their value. Derivatives (CDOS, CLOs,
ABCP, CPDOs, SIVs) enabled an enormous creation of credit.
6.
Investment
banks granted credit both to lending organizations to make loans and to
investors who bought the resulting securities.
Unregulated hedge fund profits were taxed as capital gains instead of
corporate income.
The
result is demonstrated by the steady increase in
Lots of financial firms
and their employees made big money, much of it through fraudulent or at least
risky practices. Lenders and investors
became highly leveraged. Credit and debt
soared.
Our Housing and Credit Bubbles Collapse
With no regulation of
margins, owners, investors and speculators greatly increased their leverage
(the ratio of what they owed to what they owned). Domestic financial debt as a percentage of
U.S. GDP increased as follows: 1969 – 12%, 1979 – 21%, 1989 – 44%, 1999 – 82%
and 2004 – 104%. Even a slight drop in
ownership values or increase in interest rates exposed highly leveraged lenders
and investors to bankruptcy. The
inability of Lenders and investors to value their securities based upon hidden
fraudulently risky loans compounded these risks. Not trusting these values, credit markets
have collapsed. In
response, our government is providing various support which put our revenues at
risk.
As adjustable sub-prime
and other mortgages have reset to higher interest rates, foreclosures have
increased. With fewer loans available
and foreclosed homes available, housing prices are declining. More home owners owe more than the value of
their homes. 27% of all subprime
mortgages are in default, as well as increasing percentages of other
mortgages.
We are only halfway
through our misery. Many more home
mortgages will reset to cause foreclosures.
3.3 to 5 million home loans are predicted to default, with 2.2 million
facing foreclosure. Home values will continue to decline. Investment firms will continue to write down
their loans, face bankruptcy or be bailed out by our government. Banking losses may end up totaling $1
trillion dollars. 120,000 financial workers
and 300,000 construction workers have lost their jobs. Unlike the international banking crisis of
1982, the S & L crisis of 1986, the portfolio insurance crisis of 1987, the
emerging market crisis of 1997, the failure of Long Term Capital Management in
1998 and the dot.com crisis of 1999, our
current credit crisis affects our entire financial system, and other
foreign financial systems.
The next several years may
present the biggest economic challenges to our lawmakers since the 1930s. All this will be compounded if oil prices
continue to increase (as they almost certainly will). And compounded more to the extent that
foreign countries switch their currency holdings away from our U.S. dollar.
We must change from borrow and spend to earn and
spend.
Instead of providing
demand for our economy through spending borrowed money, we must provide demand
through investing in jobs which pay back the investment though increased
economic efficiency and production. The
workers who obtain these jobs will spend their earnings to provide demand for
other products and services, thus creating more jobs. By shifting workers from providing financial
services to producing other goods and services, we will benefit from what they
produce.
Reducing our Credit Bubble
will provide the major challenge for our Obama administration. Unless we can extricate our economy from our
present stagflation, it will be almost impossible to enact health, education
and other measures necessary for reclaiming our American Dream.
Obama is now listening to
a variety of economists, financiers and others, some of whom are responsible
for our present mess and others whose viewpoints are compatible with
implementing solutions.
What’s with Recent Oil Price
Declines? – 8/22/2008
I am usually reluctant to
predict or explain prices of stocks or commodities. Virtually no one seems able to predict them
well and I have no special knowledge.
But my understanding of what is causing recent declines in oil prices
is:
·
Predictions
concerning our European economies have worsened.
·
The Euro has
declined in value with respect to the dollar.
·
The increasing
dollar value and lowered the price of oil sold for dollars.
·
No storms,
social unrest or predicted military action have disrupted present or expected
oil production.
·
Americans
driving less is so far a minor factor only.
Due to peak oil production
and increasing demand from Asian countries, I still expect that oil prices will
increase with ups and downs, due to such factors as those listed above.
Economic Bubbles Are Fueled by
Institutional Greed. – 9/5/2008
Suppose that you are a real
estate salesman, an real estate agency manager, a real estate appraiser, a bank
or other lending agency employee in charge of approving loans. You notice that your rivals and colleagues are
making more money by cutting corners: filling out fraudulent loan applications,
lying to borrowers, falsely assessing real estate to be worth more, approving
unsubstantiated risky loans, and more.
Similarly, suppose you are faced
with the temptation to repackage the loans deceptively, to sell the resulting
securities deceptively, or to loan money to those who buy the insecure
securities. Suppose you resist the
temptations for a while, but as the bubble builds, the pressure builds to get
involved or lose your position. The
pressure originates with the desire of pension, mutual and hedge funds and
various banking and non-banking financial agencies to maximize their profits,
often legally required.
Even if you realize you are
becoming involved in a bubble, you believe you can get out before it
crashes.
The resulting bubble in crash is
partly due to infections greed and a rationalized irrational exuberance. But it is driven more by market competition
driven by institutional greed. If you
refuse to be irrationally greedy, to cut corners, you lose the
competition. Others take over to drive
the bubble.
Perhaps many of us have been
faced with a situation which pushed us to cut corners to succeed. It would be interesting to know what
proportion of us never succumb, succumb only after many efforts to play it
straight, succumb after only a few efforts, and succumb quickly and
eagerly. In any event, it is sobering to
notice that our individual abilities to resist temptation play little role in
the outcome.
Replacing Useless Work with Useful Work –
9/5/2008
Many
of us are frenetically busy. We have
lots we want to get done now, soon, this year, during our lifetime. In our modern age, there are more
possibilities. They stretch our minds
and our dreams. We may want it all. But how much of what we do leads to any
worthwhile result, either externally or internally. How much of it produces something
useful? How much of it provides us great
experiences, memories, or growth? How
much of it even satisfies us while we do it or with the outcome. Looking back over my life, I find that most
of the many activities in which I passionately participated didn’t produce
anything useful, beyond my own experience.
How about you?
In
an earlier commentary, I suggested that we could often understand our economy
and needed changes, but examining what people are doing without emphasizing
what was motivating them (especially the money). Let’s imagine that we could motivate people
to quit doing many activities that aren’t useful: financial workers shifting
money around, health workers determining who is eligible for what, farmers,
workers, business managers doing unhelpful and destructive things because they
can be financially rewarded.
Like
someone trying to downsize a company, let us imagine downsizing our country to
eliminate non-useful jobs. Then imagine
upsizing our country with new more useful jobs: creating and maintaining our
physical and social infrastructure, caring for each other (family members,
neighbors, and strangers), and what else?
Do you doubt that we could find enough useful jobs to hire all those who
are now doing non-useful jobs? If we
eliminated the unfairly high amounts that some workers now earn, we might be
able to pay most of us more to do our new jobs.
Something to think about.
Fannie May, Freddie Mac Are Largest Bailouts Ever –
9/12/2008
Mortgage Giants Rescue Plan: Cost Unknown
When will it stop? First, unscrupulous lenders and real estate
brokers, driven by fat fees, take advantage of subprime loan rates. But now,
hundreds of thousands of families are being forced out of their homes when the
ARMs re-adjust. Meanwhile, the big boys at the top have raked in unconscionable
compensation: Daniel H Mudd, President and CEO, Fannie Mae: $19.2 million.
Richard F. Syron, Chairman and CEO, Freddie Mac: $19.8 million. And now, the federal Treasury (meaning: taxpayers)
will foot the cost of the bailout. Again. Remember the Lincoln Savings fiasco?
Government should not be for sale to business interests, greedily wanting a lucrative deal! But with private financing of election campaigns, public policy is up for auction. Through "artful" lobbying and campaign contributions, the special interests get what they want, and ordinary Americans pay the bill. It costs us in prices higher than necessary - for gas, groceries, school tuition and health care - and in misplaced national priorities, favoring Wall Street and Pentagon contractors instead of the security found in healthy families, well-educated and earning living wages.
We don't have to
take this! But it won't change so long as Congressional campaigns are privately
financed. That's why we have to speak up and urge action on bills in Congress:
the Fair Elections Now Act (Senate Bill1285) and the Clean Money, Clean
Elections Act (House Bill 1614). Keep up
the pressure! Contact
Senators Cantwell and Murray, and your member of Congress, until they
agree to co-sponsor these bills in Congress and work for enactment.
During this past year, sub-prime
losses have increased from $100 billion ($330 per American) to $500 billion
($1650 per American). The eventual total
losses may be twice that much. Our
deflation is becoming more and more similar to Japan’s
deflation during the past 20 years.
For
more. Any business which we may have
to bail out to protect the economy should be regulated so it doesn’t get in
trouble, requiring a bailout. For
more. As
Our
Economy Isn’t Fundamentally Sound –
9/19/2008
Fewer jobs. Less retail sales. Less investment. Failing
financial companies. Less credit
available. Stock market down. Lots of indicators that both main street and
Wall street are suffering.
John McCain’s financial mentor Phil Gramm says it’s all in
our heads. McCain says he believes that the economy's fundamental strengths
are strong, including the quality of the American worker, and the strength of
American innovation and entrepreneurism.
Unfortunately Bush’s and McCain’s policies don’t reward the American
worker, innovation or entrepreneurism.
Instead they reward the wealthy and powerful and the speculators. John McCain doesn’t realize that economic
fundamentals include rewarding productivity.
He doesn’t realize that financial companies must be regulated to reduce
fraud and speculation. As McCain once
said, I don’t understand our economy. For
more. For
more. For
more.
As Barack Obama said, John McCain is out of touch with our
economy.
No End In Sight of Failed Financial Companies – 9/19/2008
Bear Sterns. Fannie Mae.
Freddie Mac. Merrill Lynch. Lehman Brothers. AIG.
As they fail, fewer agencies are
able to loan money to investors and consumers.
What should our government
do? Doing nothing will cause recession
as consumers can’t borrow to purchase homes, automobiles and other durable
goods which they can afford. And
investors won’t be able to borrow to create new jobs. McCain’s
don’t-admit-problem do-nothing economics won’t work.
Simply bailing them out will
cost taxpayers billions and not create conditions to prevent the reoccurrence
of risky loans that caused our present problems. People will borrow to consume who can’t
afford to pay the loans back. People
will borrow to speculate, creating other bubbles.
It took much time and effort to
produce a short term stimulus package for taxpayers totaling less than $168
billion. But our
government has quickly (without congressional action) pledged $600-800 billion
to bail out collapsing financial companies.
For more. Obviously without a principled plan. But simply responding to the crisis of the
day. For more. Note that this is more than enough to pay for
government paid health care for all.
Note that this bailout money isn’t included in the anticipated $482
billion government deficit, the highest ever.
We need to change from ‘borrow
and consume’ to ‘earn and invest’.
Our highest priority should be to encourage job creation, especially
jobs using new technologies to meet our environmental, health, infrastructure
and other challenges. Some should be
federal jobs. Others should be state and
local government jobs, perhaps funded federally. Others should be private jobs, often offered
by new small firms. Tax policies and
subsidies can stimulate these types of jobs.
Financial companies should be
created or encouraged which are regulated to focus upon making loans to job
creating investors. Similarly, financial
companies should be created or encouraged which are regulated to focus upon
making loans for housing and other consumption, within the ability of the
borrowers to pay back the loans.
We should discourage loans which
the borrowers are unlikely to ‘pay back.
We should discourage loans to be used for speculation. Partly by imposing margin requirements. And perhaps imposing a transaction tax. We should discourage loans which enable
environmentally destructive consumption.
Until we direct our financial industry to making only economically,
environmentally and socially appropriate loans, we will continually face
fraudulent practices, bubbles and their collapse. More detailed commentary on what we should
and shouldn’t do will appear in next week’s newsletter.
Our failure to regulate is
bi-partisan. In
1999, Alan Greenspan, Robert Rubin and Arthur Levitt opposed regulation of
derivatives.
Restoring
Credit Is Immediately Necessary –
9/26/2008
Credit is necessary for
investment and purchase of expensive durable consumption items. We especially need investment capital for
creating the jobs described below. We
also need to provide capital for durable consumer purchases by those who can
afford them. Especially houses. Without credit, our economy will suffer a
great depression.
An increasing number of our
financial companies are failing. Highly
leveraged and burdened with securities which contain unknown mixtures of
performing and non-performing housing loans, they are unable to borrow or sell
their loans. As some fail, their
creditors are also threatened. Failure
of large financial companies threatens widespread failures. Our present financial agencies have greatly
restricted their provision of credit.
Inhibiting both the provision of unqualified loans (which is good) and
of qualified ones necessary to maintaining our economy (which is bad). For more. For more.
On a case by case basis, our
government has already committed $800 billion to bailing out failing financial
companies. But half of our
non-performing securities have not yet been accounted for. With no action to protect the financial
companies that hold them, they will surface over the next year to continually
threaten our credit and economy.
Finally getting it, our
government is now considering committing another $700 billion. $1 billion is $3.30 per
We Must Restore Credit by Buying Securities Cheaply from
Failing Financial Companies.
The cost to our economy of doing
nothing to restore credit would cost us more than $2,300 per person, in lost
jobs, lost innovation, lost savings and more.
Either way, we are paying an enormous price for the deregulation ethos
and corrupt self interested lobbying by financial companies that has infected
both Republicans and Democrats. For some history. Also see our newsletter
issue #136. Notice that the Bush
Administration is asking for almost unlimited authority to use the $700 billion
without congressional oversight. Nor has
anyone proposed an investigation of how we got in this mess. To prevent future bubbles, we need to end our
misguided assumptions and abuses.
Our government must establish an
agency or agencies similar to the Resolution
Trust Corporation which in the late 1980s acquired and later sold assets of
the failing Savings and Loan Companies at a cost of $125 billion ($200 billion
in today’s money). This agency should:
·
Acquire securities (without rewarding
shareholders and managers) of failing financial companies
·
Identify and separate non-performing and performing
loans within the securities
·
Acquire and resell houses which were purchased by
non-qualified buyers, insuring that some of these houses (especially near jobs)
remain affordable to workers and others
·
Change the unmanageable terms of loans which were
made to qualified buyers, so that they can continue to service them and keep
their homes.
·
Sell performing loans to financial companies, as
market conditions improve their value
·
Have Congressional oversight
I am not sure that we must rush
to pass this $700 billion legislation immediately. President Bush is pushing our congress to
hurry without making changes as he has previously, with his tax cut and Iraq
War legislation. Major changes must be
made to restore credit as cheaply as possible, without rewarding those who
created this mess, and adopting regulations and other measures to prevent
future bubbles and crashes. Note that
our economy worked fairly well during the 25 years following World War II
without the our many leveraged securities containing loans with unknown
risk. What would we lose if we banned
these various securities and derivatives?
Ameliorating the Decline of Housing Prices
Housing prices are too
high. They must still decline perhaps
25% to reach historic levels compared to our incomes. Delaying this decline will result in
continued problems, similar to what
When such owners decide to sell
these homes or walk away from them, a government agency (perhaps through
providing capital to local government or non-profit agencies) should purchase
them and resell or rent them as permanently affordable housing. This should not reward lending agencies which
made loans leaving the house owner with insufficient equity. Nor should it reward home owners who entered
into such loans. It should prevent the
presence of vacant foreclosed houses, which destroy both the houses and their
neighborhoods. It should make homes
available for sale to or rent by moderate and lower income persons.
We Must Prevent Future Bubbles
Unregulated activities by
individuals, organizations or markets, inevitably lead to abuses. That is why we have contract law and other
regulations. We must create and
implement appropriate regulations specific to various activities,
individuals organizations or markets.
For more detail, see Stopping Fraud and Restricting
Speculation
below. For
more.
Our Most Important
Task Is Creating Needed Jobs – 9/26/2008
We want people to be able to
earn instead of borrow. We must create
jobs, consisting of producing goods and services that we need. These include:
·
Maintaining and improving our physical and social
infrastructure.
·
Conserving energy and other resources, which
we presently waste.
·
Creating alternative energies, which uses sustainable
resources and doesn’t produce pollution.
It should not produce greenhouse gases which produce global warming
pollution.
·
Creating and implementing new technologies
relevant to our health, education, housing and other needs.
·
Preserving and improving our social safety net
and improving our human resources.
Universal access to quality health care.
Universal access to quality education.
For
more.
·
Create concentrated housing, especially affordable housing
near jobs. To reduce the damage to our
environment. To reduce the cost of
providing utilities. To reduce the
amount of commuting, fuel consumption, congestion and polluting. To increase the time that people have to
spend with their families, civic activities and other interests.
Their workers must be able to
earn in proportion to the value of what they produce. We must increase the wages of workers (in
existing and new productive jobs) enough
that they earn in proportion to what they produce. We need to
·
Realistically increase our definition of poverty For more. For more. For more. For more.
·
Increase our minimum wage and earned income tax
credits
·
Stimulate unionization, including passage of the Employee
Free Choice Act and strengthening and enforcing laws which prevent
employers from punishing workers who attempt to form unions
·
Increase the wages of our teachers, social workers
and caretakers, to encourage people to become qualified, take and keep such
jobs.
The government can obtain the
capital for creating these jobs and other reforms by
·
Restoring fair tax rates to high income earners and
our wealthy
·
Eliminating subsidies for special interests that
don’t benefit our common welfare
·
Eliminating unbeneficial expenditures, including
military industrial expenditures that don’t contribute to our national security
·
Increasing taxes to provide everyone access to
quality health and education, while saving individuals and companies money now
paid to private insurance companies and pharmaceuticals.
·
Improving and enforcing our laws against tax payer
and other fraud.
For
more. Notice how quickly our
government can find money to restore credit, especially if it helps our wealthy
and powerful. But how difficult it is to
find much less money to provide the types of needed jobs described above.
Stopping Fraud –
9/26/2008
We need to enact and impose
sufficient penalties on people who commit fraud. Including real estate, stock and other sales
people. Bank employees who approve loan
applications. Appraisers. Rating agencies with interests that tempt
them to rate stocks and financial companies too favorably. Rating agencies must be strictly at arms
length from the stocks and companies that they rate.
We need to mandate transparency
for financial transactions. We should
forbid the securitization of any loans which disguise their risks. Leave it to investors to choose the mix of
less or more risky securities that they purchase. This includes derivatives.
Restricting Speculation –
9/26/2008
The housing bubble resulted in
part because people borrowed a high percentage of the purchase price with the
assumption that the value of the house would increase. People bought houses speculating that
increased values would yield them a profit.
People also refinanced their homes to obtain money for consumption or
speculation. When housing values
declined, they no longer had equity, nor the motivation to keep their house,
leading to additional declines in housing values and the collapse of home
construction. Margin (larger down
payments and restrictive refinancing limits) requirements would have inhibited
the creation and later collapse of the bubble.
For
more.
We need to reduce highly
leveraged speculation, by imposing margin requirements. Home buyers should pay perhaps 20% of the
purchase price with saved money. Stock
buyers might be required to borrow no more than 50%. Similar limits might be placed upon other
purchasers of financial instruments, by individuals or financial
companies. The more volatile the price
of the items being purchased, the higher the margin requirements should be. Interest paid to borrow money for speculation
should not be tax deductible.
Producing and Ameliorating Employment
Shifts – 9/26/2008
Our financial sector has
increased from 10% to 20% of our economy.
We need to greatly reduce the number of people who are creating and
monitoring loans and otherwise assisting speculative activities. This means that many people will have to
change jobs. To assist these people, we
should:
·
increase the duration and size of our unemployment
payments. And reemployment counseling.
·
Provide life-long access to health care, child care
and education, independent from employment.
·
Increase training and wages for the jobs described above.
Our Financial System’s Problems and Solutions –
9/26/2008
Our
national financial system is very complex.
As is it’s problems and likely solutions. I only understand it’s broad outlines. We have changed from an ‘earn and invest’ to a ‘borrow
and consume (and speculate)’ financial system. We need to change back. We need to Reclaim our American Dream in
which our physical and social infrastructure and financial reward system enable
us to enjoy the fruits of our labor and enable future generations to produce
even more fruitfully.
Notice
the distinction between investing to
effectively and efficiently produce or distribute products and services and speculating in gold, art, real estate,
derivatives, lotteries, etc. to reap benefits that I haven’t earned, often at
the expense of people who have earned them.
Notice also that we need both individual investment in enterprises and
collective investment in infrastructure to enable individual investment to pay
off. We need to reward investment. We need to restrict speculation, especially
when it leads to infectious greed and bubbles, which produce the wrong things
and then collapse.
The
major obstacle is our addiction to
consuming and speculating and borrowing to do so. And denial
that we have become so addicted to such a destructive system. The major strategies must be to understand
the need for and make and encourage both collective and individual
investment. And to regulate (restrict
and punish) speculation and borrowing for speculation. We need to regulate individual,
organizational and market behaviors.
Different
activities, types of organizations and markets require different
regulation. Cab driving and farming tend
toward over-competition. Utilities, some
manufacturing and some retail trade tend toward under-competition. Some activities require more regulation to
produce transparency and prevent fraud than do others. Some activities (home buying, stock buying,
securities buying, etc.) require more margin requirements than others to
prevent excessively leveraged speculation.
Various fraudulent activities must be prohibited, policed and
punished. Individuals and organizations
must be forced to stop or mitigate their externalities (imposing costs on our
environment, communities, consumers, workers and owners).
Even
after trying to simply describe our financial system, its problems and
solutions, it still seems complicated.
And it quickly gets more complicated as we attempt more detailed
descriptions. I believe the solutions
expressed above are correct, but the devil is in the details of specifying and
applying them to the various markets, organizations and individuals.
Our Golden Era. Wrecked by Conservatives. – 10/3/2008
Our Golden Era: Earn and Invest (1945-1973)
Pent
up Demand. Economy grew fast enough that government debt became more
manageable. GI Bill (1944) enabled
returning GIs to attend school, buy homes and start businesses. Many women left labor force to raise
children. Manufacturing for both
domestic and foreign markets, with little foreign competition. Marshall Plan (1947-). Korean War (1950-53).
Levittown,